MSc International Business and Management
Master Thesis
“Impact of institutional distance on international negotiations – qualitative study of Dutch firms in emerging markets”
S2708892 | Wart Baghdasarian June 2016
Supervisor: Dr. M. Astarlioglu Co-assesor: Drs. A. Visscher Word Count: 14.969 (excluding references and appendix)
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Abstract
This study develops the argument for analyzing negotiations from an institutional perspective by looking into difficulties that Dutch managers face when negotiating in emerging markets. Scott's distinction between regulative, normative, and cognitive dimension of the institutional environment is drawn upon to illustrate the usefulness of this perspective. This was done by conducting a focus group and multiple case studies. Eight internationally active Dutch managers were interviewed about their negotiations with emerging markets. Findings of this paper state that difficulties managers face are due to differences in regulative, normative, and cognitive pillars. Within the regulative pillar, these difficulties are caused by strict regulations and legal requirements, governmental control, instability and change related to the political situation, and corruption in the host country. Within the normative pillar, difficulties are due to differences in norms and values, contrast in individualism/collectivism and hierarchical/egalitarian norms, and religion. Within the cognitive pillar, difficulties are caused by differences in communication style, goal perception, and language barriers. This study is useful for illustrating the value of the institutional perspective and also for understanding the dynamics of negotiation process in emerging countries.
Keywords International negotiations, Institutional Theory, Institutional Distance, Liability of Foreignness, Emerging markets
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Acknowledgements
This master thesis marks the end of my time at the university. I enjoyed doing the research as it provided me with the opportunity to research a topic I’ve had an interest in in more depth.
I wouldn’t have been able to deliver this thesis with the quality it has now without the help and guidance of several people. Therefore, I would like to take this opportunity to thank them and express my gratitude.
Firstly, I would like to thank my supervisor dr. Astarlioglu who has guided me throughout the whole research and gave me advice in moments of uncertainty. It has been a pleasure working with him.
Secondly, I would like to thank all managers who have took time to participate in the research despite their busy schedules. I would like to thank them for answering my questions thoroughly and for providing useful information regarding their difficulties in international negotiations.
Lastly, I am grateful for my family to whom I owe everything. I thank them for their constant support and for always motivating me to do my best.
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Table of contents
Abstract ... 1
Acknowledgements ... 2
1. Introduction ... 6
2. Literature review ... 8
2.1. International business negotiations ... 8
2.2. Institutional distance and Liability of Foreignness ... 9
2.2.1. Regulative distance ... 11
2.2.2. Normative distance ... 12
2.2.3. Cognitive distance ... 13
3. Methodology ... 15
3.1. Research design ... 15
3.1.1. Research philosophy and approach ... 15
3.1.2. Research strategy ... 16
3.2. Data collection ... 16
3.2.1. Focus group discussion ... 16
3.2.2. Semi-structured expert interviews ... 17
3.3. Data quality ... 21
3.3.1. Validity and reliability ... 21
3.3.2. Ethical considerations ... 23
3.4. Data analysis ... 24
3.4.1. Focus group analysis ... 24
3.4.2. In-depth interview analysis ... 25
4. Findings ... 27
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4.1. Focus group analysis ... 27
4.2. Within-case analysis ... 27
4.2.1. Within-case regulative pillar ... 28
4.2.2. Within-case normative pillar ... 33
4.2.3. Within-case cognitive pillar ... 37
4.3. Across-case analysis ... 39
5. Discussion ... 44
5.1. LoF and ID in international negotiations ... 44
5.2. Propositions regarding ID and international negotiations ... 44
6. Conclusion ... 47
6.1. Limitations and suggestions for future research ... 48
6.2. Scientific relevance and managerial implications ... 49
References ... 50
Appendices ... 55
Appendix 1: Focus group guide ... 55
Appendix 2: Interview protocol ... 58
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Index of tables and figures
Tables
Table 1: Interview questions tied to sources and propositions ... 19
Table 2: Interviewee description ... 21
Table 3: Quality of qualitative research ... 22
Table 4: Cross-case extra costs of International Negotiations ... 42
Figures Figure 1: International negotiations conceptual framework ... 14
Figure 2: Components of data analysis: interactive model ... 25
Figure 3: Framework of factors for difficulty in international negotiations ... 46
List of abbreviations
EM - Emerging Markets
ID - Institutional Distance LoF - Liability of Foreignness
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1. Introduction
Investments in emerging countries have been the main driver of the significant increase in cross- border investment activity in recent years (Poplat 2013). Their impact on the world economy has been increasing in the last decade. According to the International Monetary Fund (IMF), 2013 was the first year for when the industrial production of emerging markets (EM) passed those of developed markets. In 2020, the IMF also expects around 50% of the world´s GDP will come from BRIC economies.
As these markets regain their rightful place in the world, foreign MNEs are becoming increasingly attracted to these markets. This is mainly due to the attractive characteristics of these countries such as favorable demographics, large market size, high economic growth expectation, relatively low debt levels, and room for productivity gains and outsourcing opportunities (T. Rowe Price, 2015). Therefore, they are taking their businesses to these markets to gain competitive advantage and strengthen their position. An important part of this process is negotiating with host governments, partners, customers, and suppliers. Negotiating is usually challenging even when environments are similar. Negotiations become even harder in complex and unfamiliar markets such as those of emerging countries (Kumar, 2011). Even the biggest players in the market can fail in this aspect as was the case with Google in China because it wasn’t able to negotiate its demands with the Chinese government. Other famous examples are those of the failure of ThyssenKrupp in Brazil, and the slowdown in turnovers of Fiat Chrysler in Latin America and of Peugeot in Russia and Latin America (The Economist, 2014).
When it comes to studying the factors that affect cross-border negotiation dynamics, scholars such as Hofstede (1980) and Trompenaars and Hampden-Turner (1998) have mainly focused on the role of culture and cultural dissimilarities between countries. While these studies are useful, they don’t uncover the whole story as culture is not the only factor influencing negotiations. Other factors such as bureaucracy, regulations, ideology, and the country’s legal system might play a role as well (Kumar 2011). Therefore, it is important to incorporate these other factors to create a comprehensive assessment of negotiation dynamics. This can be done by using the institutional theory and by looking into the institutional differences which might directly or indirectly influence the ease of negotiation between two foreign firms. In this case Dutch firms and firms from EM.
Institutional distance (ID) is particularly important for Western firms who are operating in EM,
7 which is characterized by idiosyncratic regulatory environment that could hinder international business (Henisz, 2003).
To look into this, it is important to first introduce the concept of Liability of Foreignness (LoF) which Zaheer (1995) defined as “the costs of doing business abroad that result in a competitive disadvantage for an MNE subunit ...broadly defined as all additional costs a firm operating in a market overseas incurs that a local firm would not incur”. These come from the unfamiliarity, relational and discriminatory hazards that foreign firms face derived from ID (cognitive, normative and regulatory) between the home and host country (Eden & Miller, 2004).
Therefore, this study investigates the impact of ID on negotiations of Dutch firms with firms in EM and also specifies what strategies these firms or responsible managers took to overcome ID. This will be based on several in-depth interviews with Dutch managers that entered EM and negotiated with suppliers, governments or the public. Through the qualitative approach of interviews with Dutch managers who took active part in the negotiation process, the impact of regulative, normative and cognitive distance on negotiation will be identified and their strategies to overcome these will be made clear. With this in mind, the following research question is designed:
How does institutional distance impact negotiations between Dutch and emerging market firms and managers?
This question extends previous research that has mainly focused on cultural aspects when studying international negotiations without taking the environmental context into account.
The rest of this paper is organized as follows. The next section shows what has been written in literature to provide the underlying theory for the paper and highlights the relevance of institutional theory in explaining international negotiations. In section 3, the methodology, data and analysis methods will be described. Results from the analysis are presented in section 4, with a discussion and suggestions following in section 5.
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2. Literature review
In the following section, the theoretical grounding of the paper will be set. This will be done by first explaining the theoretical concept of international business negotiations followed by an examination of ID and LoF theories and their link to and effect on international negotiations.
2.1. International business negotiations
Before going further into this paper, it is first important to define international business negotiations. In this paper, Weiss’s (1993) definition will be used. Weiss (1993, p. 270) defined international business negotiations as "the deliberate interaction of two or more social units (at least one of them a business entity), originating from different nations, that are attempting to define or redefine their interdependence in a business matter".
Additionally, international business negotiations consist of three stages: (a) pre-negotiation; (b) negotiation; and (c) post negotiation stage (Weiss, 1993). Pre-negotiation stage includes the preparation and planning beforehand where trust and good relationships can be build. Negotiation process involves the face-to-face interactions, exchange of information and the transmission of offers by the involved parties. If these interactions are successful, then it leads post negotiation stage. This involves the implementation, follow-ups, and evaluation of results. For this study, the first two stages are the most relevant as they emphasize getting to know each other and exploring their preferences and expectations which can be influenced by the institutional environment.
Negotiations are an important and a frequent part of international business. Managers involved in international negotiations face several challenges in reaching successful outcomes. This is because international negotiations have different characteristics than domestic ones. For instance, they are more complex as they involve interactions between different cultures and backgrounds (Lewicki, Litterer, Minton, & Saunders, 1994). In mono-cultural environments, negotiation processes are more predictable as they are not concerned with differences in culture, regulations or language.
Furthermore, applying home country’s views of corporate governance and decision making to international deals could hinder negotiations (Sebenius, 2002). It is important to note that not only cultural differences play an important role in international negotiations, but they are also influenced by the differences in the ideology, and the nature of regulations and legal systems (Salacuse, 2015).
Therefore, regulatory, and cultural elements vary during international negotiations, which makes
9 it difficult to generalize and establish a single strategy for cross-border negotiations. According to Phatak and Habib (1996), this is because the process and outcome of each negotiation is influenced by contextual factors. They argue that researchers have mainly been studying negotiation strategies without focus on the context and when the context is studied, it is often seen as a “cultural” issue.
Therefore, it is important to consider different contexts that influence negotiation processes and outcomes. These contexts could be an environmental or an immediate one. The former refers to the environment that negotiators have little control over (e.g. regulations, economy, cultural differences), while the latter refers to the contexts which negotiators have some control over (e.g.
bargaining power of negotiators, level of conflict, immediate stakeholders) (Phatak & Habib, 1996). The focus of this study will be on the environmental context instead of the immediate context.
Gupta (2015) claims that for negotiations to be successful, negotiating parties need to have a good knowledge of the business at hand and a clear understanding of several factors such as cultural, economic, political, and legal backgrounds of each other. Thereby it is about respecting and recognizing the norms and different backgrounds of the parties. Therefore, by using the ID theory, the impact of the differences between the before mentioned factors (cultural, economic, political, and legal) on negotiations will be explained in the following section.
2.2. Institutional distance and Liability of Foreignness
One of the factors explaining country specific challenges of doing business abroad is psychic distance. Johanson and Vahlne (1977) define this as ‘the sum of factors preventing the flow of information between home and host market’. Some of these factors are: differences in language, education, business practices, culture and industrial development which create challenges in collecting and interpreting information gained abroad (Johanson & Vahlne, 1977). Thus, Brewer (2007) claims that ceteris paribus, a firm would choose a country with less psychic distance. This is based on the assumption that managing similarities are easier than managing difficulties.
However, this concept has been used in a simple manner to define difficulties of transferring information between countries. However, much has changed since the 1977 model and internationalization processes aren’t as simple as before. In their revised model, Johanson and Vahlne (2009) state that the economic and regulatory environments have changed drastically and that psychical distance is not the only factor influencing internationalization process of firms.
10 Therefore, building on the theory of psychic distance, we look into a broader concept of distance, mainly ID as this one takes more factors into account. North (1991, p. 3) describes institutions as
“the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction”. Kostova and Zaheer (1999) claim that to gain legitimacy in the foreign markets, foreign firms need to take ID into account. ID is especially important for European firms operating in EM, where institutional voids of these markets might hinder their business (Henisz, 2003). For instance, law enforcement is less extensive in EM, especially regarding property right protection. ID or dissimilarities between home and host-country institutional environments leads to LoF (Zaheer, 1995). Thus, the more the ID that higher the LoF and the costs of adaptation (Ionascu, Meyer, & Estrin, 2004).
Several scholars have studied the concept of LoF over the years (Eden & Miller, 2004; Sethi &
Judge, 2009; Zaheer, 1995) which was built on Hymer’s (1976) theorization of costs of doing business abroad. The theory claims that national firms have an advantage over foreign firms because they have better access to local market information, know the national culture, and receive better treatment from the government. LoF theory explains the challenges that foreign firms face abroad as opposed to local firms (Zaheer, 1995). These challenges come from four different sources; costs associated with spatial distance (e.g. travel costs, coordination costs due to different time zones); unfamiliarity with and lack of roots in a local environment (search costs, various cultural trainings); pressures from host country environment (e.g. lack of legitimacy of foreign firms, and economic nationalism); and pressures from home country environment (e.g. restrictions on high-technology sales). As it can be seen, foreign firms face several difficulties as opposed to local ones when operating and negotiating abroad mainly due to lack of regional information, higher environmental complexity, and the ID (Poplat, 2013). Furthermore, MNEs are rooted in their home and host environment. Therefore, it is important to lessen the ID between cooperating firms and adapt their strategy to be competitive. An important aspect of strategic adaptation is the negotiation strategies that foreign firms use in the host environment to implement them (Kumar, 2011). These create certain challenges for firms who negotiate deals abroad. In sum, the extended research on LoF suggests that Dutch firms which negotiate with EM firms will experience LoF compared to local firms.
11 Eden and Miller (2004) argue that the key driver behind LoF is ID (regulative, normative, and cognitive) between home and host country. Therefore, Dikova, et al. (2010) suggest that to reduce LoF, firms need to overcome the formal and informal constraints that foreign institutions create.
There are two approaches in this work, the economic (North, 1990), and the sociological approach (DiMaggio & Powell, 1983; Scott, 1995). In the economic approach, institutions are divided into formal versus informal institutions while in the sociological approach, they are divided into three pillars: regulative, normative, and cognitive. Peng, et al. (2008) state that the formal institution of North (1990) are similar to Scott’s (1995) regulative pillar, while the informal institution is similar to the normative and cognitive pillar. Therefore, using an integrative approach will help Dutch companies to identify institutional constrains which they might face abroad during negotiations and how reacting to the institutional dissimilarities will help them reduce LoF (Peng, Sun, Pinkham, & Chen, 2009).
In the following section, the three institutional pillars will be explained, and their relation to international business negotiations will be elaborated. These pillars are based on DiMaggio and Powell’s (1983) and Scott’s (1995) work.
2.2.1. Regulative distance
The regulative pillar constitutes the political and legal factors in a certain national environment which govern the business activity in a society by promoting certain behaviors and sanctioning others (Poplat, 2013). They impose strong environmental pressure by laying the rules and regulations which need to be met. Not complying with these rules leads to sanctions. They are the may or may not behaviors which can be easily observed by MNEs as they are explicitly codified and formalized. Regulative institutions create coercive isomorphism pressures for adoption of MNEs’ strategies to that of the host-country regulations and pressures for local responsiveness to gain external legitimacy (Eden & Miller, 2004). These can be pressure from other organizations or in the form of governmental mandates, contract law, financial reporting requirements, etc.
Differences between host and home country regulations create regulative distance which might impact negotiations. For instance, countries with extensive regulations or ones which are inconsistent in applying relevant regulations, might potentially hinder negotiations or deter them from happening. Moreover, the absence of an independent and impartial judiciary that solves conflicts in a fair and timely manner would influence the easy of negotiations. Western managers
12 will be forced to negotiate detailed contracts to safeguard their products and services (Kumar, 2011). Furthermore, Dutch managers that are negotiating with EM firms might for example have difficulties in taking the negotiation further because of their inability to obtain certain license due to their unfamiliarity with local government practices. All this would create uncertainties for the home country firm and eventually increase transaction costs. This leads to the following proposition:
Proposition 1: Regulative distance between countries has a positive effect on difficulty in international negotiations.
2.2.2. Normative distance
The normative pillar refers to “the values and norms held by the individual in a given country”
(Kostova, 1999, p. 314). These are the moral beliefs and expected behavior of humans as the basis for social meaning and order. They constitute of the social values, norms, and humanly acceptable behavior. In this pillar, things are defined based on what should and should not be done according to society’s norms and values. These influence the way people perceive the world. They are harder to recognize as they are culturally embedded and require tacit knowledge which is hard to trace for foreigners (Kostova & Zaheer, 1999). MNEs need to conform to normative institutions of host countries to gain legitimacy which is created by the isomorphic normative pressures brought about by professions. Therefore, pressures are exerted through social obligation where a specific person is expected to behave in a certain manner (Scott, 1995).
The cognitive pillar is also especially important in EM that lack strong institutional regulative environment. The lack of trust in the institutional environment has led firms in EM to focus more on personal relationships and networks in business environments. This has created a system where testimonials and personal introductions are an important part of the business especially in China and South Korea (Redding, 1972). Furthermore, in the context of negotiations, you can also think of the importance of religion in certain countries of EM which might impact their decision making during negotiations or the contrast between collectivistic and individualist mindset. Furthermore, there have been several studies which have focused their attention on this pillar to illustrate difficulties occuring during international negotiations (Hawrysh & Lynne Zaichkowsky, 1990;
Hofstede, 1980; Trompenaars & Hampden-Turner, 1998). These observations lead to the following proposition:
13 Proposition 2: Normative distance between countries has a positive effect on difficulty in international negotiations.
2.2.3. Cognitive distance
This pillar reflects “the cognitive categories widely shared by people in a particular country such like schemas, frames, inferential sets and representations affect the way people notice, categorize and interpret stimuli from the environment” (Kostova, 1999, p. 314) or “the social knowledge, national symbols and the way and ability that people understand and interpreted things in a certain country” (Xu & Shenkar, 2002, p. 610). It influences the way people select and interpret information. Cognitive actions are culturally supported and conceptually correct action which is usually taken for granted as people do them unconsciously. They reflect the cognitive structures and social knowledge shared by the people in a given country. Practices or routines of problem solving are influenced by this pillar. These are what can or cannot be done (Kostova & Zaheer, 1999). LoF for MNEs increases as cognitive distance rises. This increases the memetic pressure for them to be isomorphic and responsive to the host country environment.
In the context of negotiations, cognitive differences are reflected in high versus low context cultures, where information is exchanged indirectly for the former and directly for the latter.
Communication problems during negotiations as a result of language differences make negotiations difficult as well (Condon & Saito, 1974). Furthermore, some cultures value trust and long term relationships as a prerequisite for good negotiations while others are more task oriented. Also, contracts might not have the same sanctity in different institutional environments (Kumar, 2011).
These are some of the cultural contrasts which can be found between Dutch and EM firms that would impact negotiations between them. These observations lead to the following proposition:
Proposition 3: Cognitive distance between countries has a positive effect on difficulty in international negotiations.
Based on the above theories and propositions, a conceptual framework has been created. This can be found in Figure 1.
14 Figure 1: International negotiations conceptual framework
Source: Author
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3. Methodology
In this section, the methodology of this research will be presented. This will be done using the research onion model (Saunders, Lewis, & Thornhill, 2009), where the stages of developing a research strategy will be illustrated. Therefore, this section will explain the following: research philosophy and approach, research strategy, data collection, and analysis methods. The purpose of this chapter is to explain the reasoning behind choices made during the research and make the research process transparent to increase the reliability of the results.
3.1. Research design
3.1.1. Research philosophy and approach
There are two ontological frameworks within the research philosophy: positivism and constructionism (Monette, Sullivan, & DeJong, 2013). In this paper, constructivism approach was used. This approach implies that social phenomena and reality are constructed by social actors and truth is relative and dependent on one´s perspective. This approach aided in describing the coherent structure of a multilayered phenomenon to strengthen the fabric of our understanding of difficulties Dutch firms face during negotiations with EM firms due to the ID between them.
Within this philosophy, the inductive approach was used as the research went from research question to observation and description of the situation to analysis and finally theory (Flick, 2015).
Therefore, several interviews were carried out with Dutch managers concerning their difficulties while negotiating with firms and managers in EM and then the obtained data were examined to detect and find certain patterns between respondents.
Saunders et al. (2009) distinguish between three types of research studies: exploratory, descriptive and explanatory. Exploratory study seeks to find new insights and tries to answer problems, which have not been clearly clarified. This method is useful for clarifying and understanding problems.
In general, there are three principal ways of conducting exploratory research: searching literature, conducting in-depth interviews, and conducting focus group interviews. Since there is limited amount of studies available that were set to explore the effect of ID on international negotiations, an explorative qualitative study seemed to be more suitable. This was done to allow respondents interpret their own reality without it being imposed by my own perception of the topic (Banister, 2011). This approach allowed me to have an unbiased look into the ideas and experiences of
16 respondents in more depth. Furthermore, qualitative research method helps in gaining an in-depth understanding of complex issues and exploring new research areas (Hennink, Hutter, & Bailey, 2010).
3.1.2. Research strategy
To answer the research question, multiple case studies were used as they are effective means of doing qualitative research (Feilzer, 2010). Case studies provide deeper insight into the specific nature of phenomenons, and provide the opportunity to find patterns based on the information provided by respondents (May, 2011). The relative disadvantage of this method is regarding the competence of the interviewer. It is important that the interviewer has and is able to demonstrate competences in areas such as using appropriate language, questioning, listening, summarizing understanding and recording the data (Saunders et al., 2009)
The qualitative approach of case studies contributes to 1) understanding difficulties that Dutch managers face while negotiating with EM firms and 2) understanding whether these problems are related to specific institutional characteristics of these markets. Moreover, this approach allows us to look into the phenomenon from participants’ perspective (Hennink et al., 2010). This method is suitable for theory building and will be conducted based on the method described by Eisenhardt (1989) as it is widely accepted as a suitable approach for case studies.
3.2. Data collection
In this paper, a combination of focus group and in-depth interviews was conducted to collect data.
3.2.1. Focus group discussion
First, a focus group discussion was held. This method is used to identify perceptions, thoughts and impressions of a selected group regarding a specific topic (Kairuz, Crump, & O’Brien, 2007). The focus group consisted of five International Business and Management master students. These were chosen due to their knowledge and expertise regarding the theories of LoF and ID. They were chosen to informally discuss the difficulty of international negotiations and the impact of ID on them. Producing an informality in the discussion is an important part of running the focus group (Puchta & Potter, 2004). Unlike group interviews, this method is conducted to stimulate discussion between the group to use it as a source of knowledge (Yin, 2004). Moreover, this method is useful for generating valuable information regarding the topic, and acting as a preliminary work in
17 preparation for creating interview questions and conducting interviews with experts (Morgan, 1996). Furthermore, it is important that the researcher moderates the discussion to gain valuable information. Three forms are distinguished, namely formal direction, topical steering, and steering the dynamics (Yin, 2004). For this study, the topical steering method was done where during the discussion new questions were introduced to stimulate the discussion and steer it towards a deepening and extension of the topic. The aim of this moderation is to not disturb participants’ own initiatives or impose my own opinion on them but rather create an environment in which the discussion keeps on going.
Nevertheless, this method has its limitations. For instance, participants act according to their personality and it is possible that those with a weak personality would agree with the ones with strong personality or that they are not comfortable in expressing their real opinions. This is done to not lose the image that other participants have of them (Milena, Dainora, & Alin, 2008)
3.2.2. Semi-structured expert interviews
The used second method to find new insights into this topic was conducting semi-structured expert interviews. In this method, interviewees are seen as experts in a certain field of activity (Yin, 2004).
Therefore, these experts represent a group rather than a single case. By using open-ended questions, I was able to gain in-depth information regarding difficulties in international negotiations related to ID. The expert group consisted of Dutch managers responsible for and actively involved in the international expansion of firms into EM. These are active in negotiations of the firm and have a direct contact with people from EM such as international sales managers, export managers, and international purchase managers. By focusing on these managers, I was able to interview people who are knowledgeable enough to provide the required information. The interviews were semi- structures which means that they were prepared in advance by creating the interview guide (Appendix 2). The interview guide provided a structure for the interview that will enabled me to discuss the important issues regarding the topic. However, follow-up questions were also asked to receive more elaborated information regarding unclear matters. Thus, the interview guide was not followed strictly which created a guided conversation rather than structured one (Arksey & Knight, 1999). This method allowed me to speak to people who are actively involved in international negotiations with EM on a regular basis. Therefore, the data were more specific compared to other data collection method (Boyce & Neale, 2006).
18 When formulating the interview guide, it was important to not ask leading questions which would create biased results. Therefore, the interview questions were all open-ended that could easily be understood. In total, sixteen open ended questions were formulated based on the literature and the focus group discussion. All interview questions were tied to the to the propositions introduced in the literature review (Table 1). Furthermore, the sources from which they were derived are added in the same table. The questions were divided into four themes; General negotiations knowledge, Regulative, Normative, and Cognitive. In general negotiation knowledge, the questions were regarding negotiations in general such as what makes negotiations successful or difficult and what managers do to prevent or anticipate dilemmas. Regulative theme included questions concerning difficulties managers faced related to formal rules of the host country, its political situation and legal requirements. Normative theme included questions regarding differences in norms and values of managers and how that impacted negotiations between them. Cognitive theme was regarding cultural differences and how that impacted negotiations between managers as well.
Interview sample
As this is a qualitative research, the sampling was theoretical instead of statistical. Therefore, the sample size was not defined in advance, and sampling was finished when theoretical saturation had been reached (Wiedemann, 1991). Glaser and Strauss (1967) define theoretical saturation as "no additional data are being found whereby the sociologist can develop properties of the category"
(p. 61). Moreover, judgment sampling method was used which allowed me to actively select the most productive and effective sample to answer the research question. This method is suitable for small samples and focuses on a particular group in which the members are similar to each other (Saunders et al., 2009).
In total, fifteen Dutch managers were contacted by email and telephone to ask them to participate in the interview. All managers received detailed emails explaining the purpose of the research, their added value for the analysis, the time and place to conduct the interview, and the guarantee for anonymity and confidentiality. Twelve managers replied, of which eight expressed their willingness to participate and four stated that they were unable to participate within the required time of the research. Eventually, eight interviews in total were conducted with managers representing six different companies, one of which was done via Skype and seven were done face- to-face.
19 Table 1: Interview questions tied to sources and propositions
Source: Author
20 The skype interview was conducted as the respondent was not in the Netherlands during that period.
Skype interviews are less personal and could create a less sense of trust and can influence the extent of information the respondent is willing the share. However, during the Skype interview, the respondent was informed in detail regarding the manner in which his provided information will be dealt with. Furthermore, seven out of the eight interviews lasted between 55 – 70 minutes, except one which lasted 30 minutes due to the availability of the manager. However, during that time, all questions were asked and answered. All interviews were recorded with participants’ consent. The advantage of recording interviews is that no data is lost and the interviewer can focus on listening and asking questions rather than taking notes intensively (Arksey & Knight, 1999). However, this could prevent interviewees from speaking freely and providing sensitive information that could harm them or their company. This could be an issue some questions are regarding sensitive topics such as corruption or problems that they have with their current partners or clients in EM (Arksey
& Knight, 1999). To prevent this problem, respondents were guaranteed confidentiality of provided information. Any information that is included in the report will not identify the respondent or the company they represent. Furthermore, respondents had the freedom to not answer questions if they didn’t want to. However, this did not happen during the interviews as respondents answered all questions thoroughly. Following in Table 2, a description of the interviewees.
As it can be seen from Table 2, the companies have different core activities, varying between product to service providers. Also, company size differed from 30 employees being the smallest to more than 1.600 employees being the largest. Selected companies were divided into three group based on their size. Those are small (less than 50 employees), medium (50-250 employees) and large (more than 250 employees) companies.
As for the interviewees, these had different backgrounds as well. Most interviewees were export or international sales managers who negotiated with clients on regular basis. Furthermore, one business development and one product and marketing managers were interviewed. Both negotiated with EM partners on regular basis as well, making them suitable participants for this study.
participants also varied in their length of experiences operating in EM from 2 years being the least experienced to 35 years being the most experienced one. However, the least experienced manager in EM region was able to provide suitable information to this study, this is due to his longer international experience in other regions. Furthermore, also all participants have experiences in
21 working and negotiating with developed countries managers. This makes them a suitable sample for this study as this experience will allow them to compare their experiences of negotiations in both regions and highlight the differences between them.
Lastly, the regions which the managers operated in are as followed; four in Africa, six in Asia Pacific, three in Balkan and Eastern Europe, four in Middle East and one in Latin America. The diversity in regions will allow for creating an overview with the main differences and similarities between the EM regions.
Table 2: Interviewee description
Source: Author 3.3. Data quality
3.3.1. Validity and reliability
To ensure the quality of the results, four elements need to be addressed (Yin, 2004), namely construct validity, internal validity, external validity, and reliability. These elements need to be
22 applied during the design of the study, data collection and analysis, and data reporting. An overview of the tests and their corresponding tactics are shown in Table 3.
Table 3: Quality of qualitative research
Source: Yin (2004)
Construct validity ensures that the used measure corresponds to the research concepts. Yin (2004) argues that construct validity can be tested in three ways. The first is using multiple data sources.
In this study, focus group, multiple interviews, company documents, and websites were used to enhance construct validity. Second method is to establish a chain evidence which is realized when the observer follows the analysis from original data to coding, and eventually pattern creation.
Therefore, all interviews were recorded and transcribed with 24 hours after the interview to ensure that no data are lost. Third, informant reviews mean having interview participants review a summary interpretation of the research for accuracy. This will be controlled for in co-operation with respondents.
The second element is aimed at internal validity which involves establishing a causal relationship between variables (Yin, 2004). The first approach for interval validity is pattern matching which sees whether the conducted interviews align to the dimensions which are identified from the theory.
In this papers, patterns were identified after conducting various interviews with experts regarding difficulties they faced while negotiating with EM firms and then categorized in the three pillars of Scott (1995). The second approach to internal validity is rival (alternative) explanations which are
23 concerned with whether the researcher can identify other theories that would better explain the findings (Yin, 2004). This will be examined based on the findings of the interviews.
The third element is external validity which addresses generalizability of results. Qualitative studies are often criticized for their lack of generalizability. However, Yin (2004) claims that external validity is supported by replications of findings which will be done through multiple interviews with experts to see if certain difficulties among respondents are similar. The aim is to create analytic generalization instead of statistical one from which theoretical and managerial implications can be created.
The last element is regarding reliability of the research to ensure that the taken steps (e.g. data collection, analysis) can be repeated yielding similar results across similar situations (Yin, 2004).
To ensure the reliability of this study, the following measures were taken. First, a database was maintained where the steps are documented and where the all relevant information for this study such as recordings, transcripts, and notes are stored. Second, an interview protocol was created to endure the consistency of asked questions during the interviews. Incorporating all these steps in the design of this study ensured the quality of data collection and results which will lead to valid and reliable results.
3.3.2. Ethical considerations
Due to the type of this study which is regarding a phenomenon in a reality, it is important to take ethical considerations into account to increase the (ethical) quality of this research. Saunders et al.
(2009) define ethics as “the appropriateness of your behavior in relation to the rights of those who become the subject of your work or who are affected by it” (p. 183‐184). Ethics in the context of research relates to topics such as how participants are treated in the research, how data are collected from participants, processed and analyzed. This is done to ensure that the findings of the research are presented in a responsible and moral manner, and that participants would not suffer adverse consequences from the research findings. Hennink et al. (2011) state that ethical considerations are especially important in qualitative research because this kind of study is meant to know perceptions, beliefs, and feelings of people, and such studies often involve sensitive topics.
Therefore, Hennink et al. (2011) propose six criteria to evaluate the (ethical) quality of the research:
informed consent, anonymity, confidentiality, justice, benefice, and minimization of harm.
24 Informed consent is about the information that the researcher provides to make sure that participants are fully informed about the situations that they are being placed in. Therefore, when participants were contacted, an elaborated email was sent to them stating the following elements:
purpose of the study, activities involved in the research, right to refuse or withdraw without consequences, how confidentiality and anonymity will be handled, and expected interview duration and the location. Furthermore, at the beginning of the interview, all participants were informed that the interview would be recorded but not shared with third parties.
Next is regarding preserving anonymity and confidentiality of participants. The former is concerned about keeping the identity of participants hidden while the latter is about keeping the data records that the interviewee doesn´t want to be published confidential. To preserve anonymity, interviewees and their companies were not named in the report to avoid potentially undesirable attention for the organizations. Confidentiality is preserved by asking participants which data they wish to publish and by not sharing the recordings with third parties.
Justice is concerned about not exploiting or deceiving participants and that findings are presented justly without bias. Therefore, it is important to make sure that results reflect the real situations without any biasness, and that a balanced view is provided regarding the topics. This means that both negative and positive findings are reported. Furthermore, benefice for participants should be clarified. Also, it is important to ask who will benefit from the study? This thesis is purely for academic purposes and there are no financial incentives for interviewees.
Lastly, it is important to consider the minimization of harm to the interviewees by taking into account what could cause social harm for participants. interviews didn’t involve topics that could harm participants (physically/mentally/economically/socially).
3.4. Data analysis 3.4.1. Focus group analysis
The data of the focus group was recorded, transcribed, coded and then grouped according to common factors exhibited between respondents to ensure that the data were carefully contained.
The extend of analysis required depends on the purpose of the research and complexity of the research design (Stewart & Shamdasani, 2014). The aim of this method was to prepare for the final interviews with the Dutch managers and act as an inspiration for creating interview questions.
25 Therefore, no extensive analysis of the data was required and The Scissor-and-Sort Technique was used to analyze the transcript (Stewart & Shamdasani, 2014). This was done by going through the transcript and identifying relevant sections to the main research question. This was followed by developing a classification system of the major topics. major topics in this case where the three pillars of Scott (1995); regulative, normative, and cognitive. data in the transcript related to each topic were identified and color coded. Lastly, the data was cut and the relevant information was placed under the three main categories.
3.4.2. In-depth interview analysis
All interviews were recorded, transcribed, coded and then grouped according to common factors exhibited between respondents to ensure that the data were carefully contained. To analyze interviews, Miles and Huberman’s (1994) framework was used which allows for tracing relationships among social phenomena. The framework suggests that qualitative data analysis consists of three components which interact throughout the analysis: data reduction, data display, and conclusion drawing/verification.
Figure 2: Components of data analysis: interactive model
Source: Miles and Huberman (1994, p. 12)
After full transcription of all interviews, the obtained data was reduced and organized into manageable data. This was done by editing, summarizing, and discarding irrelevant information.
However, discarded data were kept in a separate document where it was possible to access them when required as unexpected findings might create the need to re-examine the data which were previously considered unnecessary.
26 Data reduction and display are created by coding and memoing. data of the transcripts were thematically coded into four main themes (first-level coding) to create a proper comparison of the main topics and organize them into conceptual categories. Moreover, this method allows the researcher to continuously relate the data to certain themes, so that the interpretation of the data can form a plausible story and theoretical framework. The main themes were; regulative pillar, normative pillar, cognitive pillar, and general information. The last theme was created to make sure that relevant information which does not belong to the main themes is preserved. This creates the possibility of answering the main research question to the best extent possible. Miles and Huberman (1994) call these descriptive codes which require low inferences and are useful for summarizing and segmenting the data. These create the basis for higher order coding which are more interpretive in nature and focus on pattern codes. Pattern codes pull the material into smaller and more meaningful units. Therefore, within the main themes, the data was also placed into sub categories which provide a deeper explanation of the factors within each theme.
The second operation of qualitative data analysis is memoing. Glaser defines a memo as “the theorizing write-up of ideas about codes and their relationships as they strike the analyst while coding… it can be a sentence, a paragraph or a few pages… it exhausts the analyst’s momentary ideation based on the data with perhaps a little conceptual elaboration” (Glaser, 1994, p. 83-4).
These will include writing the main the ideas that occur while coding and could be regarding theory, methodology, or personal notes. This helps in progressing the analysis from descriptive into an empirical and a conceptual level.
After collecting and categorizing the data into different themes, first within-case analysis was conducted, were the different cases were categorized within regulative, normative and cognitive themes. This method will enable the examination of each pillar separately. According to Eisenhardt (1989), this method helps in comprehending large amount of found data, and getting familiar with them to generate preliminary theory. As for the cross-case analysis, this will allow for further investigation to look beyond first impression and find connection between the cases. Furthermore, to draw valuable conclusions from the data, it is important to display the results in a graphical format (Miles & Huberman, 1994). This will be done in the discussion section where the created framework will be shown graphically.
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4. Findings
In this section, the findings of the focus group are presented, followed by the findings of within- and across-case analysis. These are based on the in-depth interviews with the Dutch managers.
4.1. Focus group analysis
Regarding the regulative pillar, a participant mentioned that looking into the regulative aspect in EM is important because the rules there are different compared to the European ones. These are less developed and often quite unclear to Western managers. Another respondent mentioned that he believes that rules and contracts are not strictly followed in EM and that corruption is more presents. Therefore, participants agreed that building good relationships, creating trust, and safeguarding through detailed contracts in EM is essential for doing business. Furthermore, it is believed that technological companies would struggle with issues regarding intellectual property protection and complying to legal requirements of EM due to managers´ unfamiliarity with the environment.
Regarding the normative pillar, respondents believe that the difference in collectivism and individualism norms would influence negotiations. One respondent believed that not being a member of certain groups in EM could hinder negotiations as the nonmember would face legitimacy issues. Another mentioned issue was power distance. Several respondents recognize that there is egalitarian culture in the Netherlands which is in contrast with hierarchical ones in several EM. One participant mentioned that such issue would hinder negotiations as young Western managers or managers with low positions would struggle in gaining respect from old and high position managers in EM.
As for the cognitive aspect, participants believe that differences in communication style (low versus high context) influences negotiations. Dutch managers are direct (low-context) and they could face difficulties when negotiating with other regions characterized by high-context communication style. Moreover, another participant mentioned that differences in long versus short term goal orientation of negotiators could influence the outcome of negotiations.
4.2. Within-case analysis
The within-case analysis is categorized based on Scott’s (1995) pillars and Eden and Miller’s (2004) categories of the regulative, normative, and cognitive distances. Problems and difficulties
28 that Dutch managers faced were categorized and placed into one of the three pillars. This was done by comparing the issues mentioned in the literature to the problems faced by the managers.
4.2.1. Within-case regulative pillar
The regulative environment of a country is a large influencer on the business within which a firm operates in. Most EM don’t have favorable regulative environments, as they are characterized by over-regulations, non-transparency ineffective and inefficient rules, and absence of impartial judiciary that could resolve conflicts in a timely manner. According to the transaction cost theory, such unfavorable regulatory environment would increase negotiating costs (Williamson & Masten, 1995). Regulative factors which have come forth after conducting the interviews are regulations and legal requirements, governmental control, instability and change related to the political situation, and corruption.
Regulations and legal requirements
The world consists of more than 150 countries that have their own foreign policy and regulations.
Therefore, international negotiators often find themselves in middle of a conflicting policy between host and home country. For example, respondent 6 mentioned:
We import several food products from Africa and China. So if products meet the Chinese or African health requirements, that does not mean that they meet the European ones. Often we need to negotiate on adjusting product specifications to move further.
Home country regulations and policy influence international negotiations, however, the same can be said for host country policy. For example, respondent 1 works for a company that exports food products. He recalled:
Due to the fact that several animal diseases had spread in Europe in the past years, several EM countries were difficult regarding the import of Dutch products.
Therefore, we were completely dependent on the agreements which were made between the Netherlands Food and Consumer Product Safety Authority and that of the host country. If there are no agreements made, then we could not export our products.
29 As mentioned in the literature, foreign companies need to comply with host country’s regulations and restrictions. The way that some EM firms deal with regulations in their country is not the same as how Western companies do. Western managers deal with regulations by following rules and contracts to a large extent. In some emerging countries such as China, this tends to be different. In China, people focus on the reaction of the context. Meaning, if people in their surrounding environment think that certain actions are acceptable, then it is also acceptable to the actor (Kumar, 2011). On this matter, respondent 8 recalled:
It appears that people in EM such as India, China, and Middle East agree on things much easier and faster. They want to sign everything now. However, you should not do this. First, you need to make sure that the paper work is done, and contracts are written to set the tone… through contracts we want to create a sense of certainty, especially because they are further away, you want to arrange everything well so you would not come across surprises.
Often it is difficult for Dutch managers to deal with foreign legal requirements and know what they need to do to obtain certain documents. To deal with local regulations and legal requirements, Dutch managers use different strategies or actions. One of these strategies occur during negotiations with EM firms. For instance, respondents 1, 2, and 7 advised that consulting and cooperating with local partners helps them in dealing with such issues. On this matter, respondents 1, 3, and 7 mentioned that local firms often try to help as they are eager to do business with them.
Therefore, during such negotiations, both parties work together to solve legal issues.
Government control
Another issue is government controls which covers the extent of governmental interference in business. Extensive governmental control over industries is common in most emerging countries such as China, India, Egypt, and Indonesia (Phatak & Habib, 1996). Governments exert control over certain industries through protectionism such as establishing duties and tariffs, and controlling output capacity. Such extensive interferences could hinder international negotiation processes and outcomes. Even though these interventions have been reduced after their liberations, the level of such intervention is still more than what one would encounter in developed countries.
