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Building Negotiations Business

The Role of Trust and Relationship Building in Negotiations

“To be successful, you have to be able to relate to people; they have to be satisfied with your personality to be able to do business with you and to build a relationship with mutual trust.”

Abstract

It is no secret how the nature works of sense of survival and adapting. The world in all aspects is changing very quickly which causes a certain need of accepting changes, learning how to cope with them and quickly and appropriate to adapt to the new requirements. In the business field and the field in negotiations as well opening the “borders” between the countries and the internet and computer boom lead logically to what we call today e-negotiation.

Negotiations occur in different levels within every organization. The challenge to negotiate occurs internal within the organization as well as external. The competiveness of the business environment today makes impossible underestimating the role of the relationship building and mutual trust in the negotiation process.

The paper examines the role of trust and relationship building in the negotiation process trying to give a deeper understanding and different aspects on these two key issues which nowadays are important elements in the negotiation field.

In addition I would like to discuss creating trust and establishing relationship in cross-cultural negotiation whereas showing the difference in the perceptions depending on the culture identity.

In the terms of globalization and rapidly changes our life is no longer the same as it was 10 years ago or as it going to be in 5 years later. The simple truth is that we are engaged with hundreds of negotiation processes taking place each day in the field of our personal life or in the business area. And as the borders between the countries fall and we have to cope with interaction with new negotiation partners from different countries, we should learn how the most important borders should fall - the ones that we have created in our mind, souls and behavior attitudes. Even when not realized we take decisions to trust or distrust; aim to establish, conceive or ruin a relationship every minute of an interaction. This rises the question how important is trust or where does the relationship building position itself? And as simple it seems, in fact, behind this two structures hide different factors; their different appliance produces variable outcomes. Creating trust and establishing a relationship are strongly connected to our desire to communicate, to experience or to refuse. I was also interested in the way culture and culture and cultural rules predetermine and influence the role of trust and relationship building.

Definitions of trust vary across psychology, sociology and economics, and there are different levels of analysis, due to interpersonal, social and institutional trust. According to Rousseau (1998) the general definition of interpersonal trust is “a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behavior of another.”

Similarly, Barney and Hansen (1994) define trust as “the mutual confidence that no party to an exchange will exploit another's vulnerabilities”. Furthermore, Sztompka (1999), define trust as “a simplifying strategy that enables individuals to adapt to complex social environment, and thereby benefit from increased opportunities”. In situations when people have to act in spite of uncertainty and risk, trusting becomes the crucial strategy for dealing with uncertainty and uncontrollable future.

The most commonly accepted approach defines trust as “the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other party will perform a particular action important to the trustor” (Mayer, Davis & Schoorman, 1995).

Many of definitions share the notion that the core component of trust is an expectation from humans or objects to behave in a certain way. Trust may be conceptualized as a behavioral tendency to trust others or as cognition about the trustee (Rempel et al. 1985).

Since the researchers have discussed the concept of trust for a long time, they have also argued that trust is formed of three components: ability, benevolence and integrity (Mayer, Davis & Schoorman, 1995). Lewicki and Wiethoff (2000) suggest that relationships of different depths (closeness) will be characterized for two different types of trust: calculus-based trust and identification-based trust. With the first is meant a market-based calculation determined by outcomes resulting from maintaining the relationship relative to those of severing it. The identification-based trust is where the parties understand and share fundamental values and can act as agents for one another (Lewicki & Bunker, 1996; Lewicki & Wiethoff, 2001).

2.1. Trust, risk and formal structures

The importance of the trust is rather relevant in conditions of uncertainty with respect to unknown actions of the others. When placing trust in the negotiation relationships it would mean as if no risk was existing. In this way of thoughts trust is intensively connected to the risk and the future. When creating a trust relationship we react as if we are comfortable with the future, as we know it or can predict it.

The formality of the relationships is also a factor for creating trust. Formal contracts are often prerequisite for risk-averse parties to establish mutually beneficial relationships.

According to Malhotra & Murnighan (2002) trust can thus lead to more efficient negotiated agreements by letting parties act more interdependent and flexible to adjust to the changing surroundings and demands.

The literature goes even further suggesting that a formal contract that specifies the rights and the responsibilities of the parties can also be seen as a substituted of trust. This means that existing of a strong trust between the parties may make certain constraints of the contract not necessary.

The difference between the formal and informal approach is also strongly presented in cross-cultural negotiations. Some cultures (i.e. in European countries) are orientated more towards formal rules, norms and regulations. In some cultures, like America, an informal style may help to create friendly relationships and accelerate the problem solving solution. In China, by comparison, an informal approach is proper only when the relationship is firm and sealed with trust.

But even when a contract between the parties can regulate certain constraints and requirements, it turns out impossible for this formal approach to cultivate trust.

In the literature are discussed rather different views on the question if formal communication undermines the informal in means of creating trust and relationships. Malhotra and Murnighan (2002) suggested that the complexity of the relationship in a negotiation requires a mixture of formal and informal structures.

The importance of trust derives directly from the nature of human beings as social animals who can only satisfy most of their needs by means of coordinated and cooperative activities”. (Sztompka, 1999)

This statement suggests that trust and cooperation are tightly connected, and thus the trust process is more complex. Cooperation occurs when two or more parties act together and have as an aim a common goal, whereas it is clear that attaining it is not possible when acting individually. In such perspective, trust is a precondition and in the same time - an outcome of a successful cooperation. In a situation of cooperation each of the parties has certain expectations about the actions of the other party and such builds a certain level of trust. Though, as the complexity of trust rises, the cooperation level decreases. Each of the parties creates certain expectations towards the other party and the exchange between them creates a network of mutual trust. Thus, the trust becomes rather complex.

On the other hand distrust could motivate a competitive behavior and in the same time to destroy the opportunities for cooperation.

Creating trust and thus motivate cooperation can ease the learning process between organizations and help solving problematic issues in a conflict during a negotiation.

Sharing of information is crucial for the process of negotiations. As initial preparation and access to information is considered as a prerequisite for the negotiation process. Sharing of information itself needs certain conditions to be presented and the level of the streams and the willingness of giving away of information could be different between friends, partners that one has already work with or completely unknown new business players. In fact even between relationship with friends and between strangers (meant to be business interactions) the difference in the information flows could be quite big.

Strangers struggle to find a method of interaction that works for both sides. Friends, in contrast, are able to coordinate a negotiation's relational, procedural, and informational acts in ways that enhance information sharing and accurate interpretation. (McGinn, 2004)

Creating trust can be a slow and hard process. Once formed, a trust relationship could in most cases easy the information transfer. As trust is considered as a motivation behind a cooperative behavior, we could expect that a climate of trust will enhance the parties to share information and learning. Information sharing is a crucial feature of the negotiation process. Such mutual tryst and establishing a relationship motivates the information stream, I could suggest that the climate of trust is a prerequisite of a successful and collaborative negotiation process.

There is a very specific problem which is relevant to the nature of the information and the outcomes. It raises the question if information shared is relevant to interests and issues at the outset of the negotiation help to achieve Pareto optimal outcomes. This suggests that of much of importance is transfer of precise and strategically useful information.

In some cultures and societies in order to reach even the beginning of a negotiation process, mutual trust should be created prior and especially the business partners expect to share and receive a lot more information which normally has more to do with out of the deal attributes and personal data.

The decision to trust or distrust occur in a cultural context and from this perspective trust appears as a cultural rule. Different rules are present for those who give trust and for those who receive trust. Trust appears to play a different role in the different type of societies. In addition, there are different social roles in the society considering trust. Francis Fukuyama (1995) makes a distinction between high-trust cultures in which he includes several countries of the Far East, and low trust cultures, in which he includes some countries from the West (Sztompka, 1999). Once the trust culture emerges and becomes strongly rooted in the normative system of a society, it becomes a powerful factor influencing decisions to trust, as well as decisions to meet or to reciprocate trust taken by many agents, in various social roles, and in many situations.

In the context of international negotiations relationships are based much on previous experience and prospect of future interactions. If the negotiators have had no previous interactions then trust or distrust could appear to be not that strong factor in predetermining the future contact. In other words, the lack of previous experience, neither positive nor negative, the international negotiators are likely to start from a so to say zero-ground. And still when talking about low and high-trust societies it could be expected that some cultures have already certain attitude when going into negotiations. Of course it is hard to be determined, since the culture and cultural rules could not be directly transferred to the individuals, since differences always exist and since the globalization process is faster than ever.

The literature argues that there is a significance difference between trust and distrust. If trust is considered being confident positive expectations of another's conduct, distrust is defined as confident negative expectations of another's conduct (Lewicki, 2006). As we know there are three main requirements for negotiation - change, freedom and interdependence. The nature of interdependency of the relationship could cause fear and discomfort and even danger. In order to prevent and protect our interests we naturally step into the area of distrust. With developing distrust towards the other party we tend to change the cooperation with competitive position and thus cause escalating the conflict.

Distrust itself is has its roots in group membership (Lewicki, 2003). In fact in collectivistic cultures, for example, individuals identify themselves with and attach themselves to an in-group. As strong the relationship in the in-group is as a higher level of hostility, suspiciousness and negative attitude to the out-group members is to be expected.

Distrust is also created with the time, which means that distrust attitude tends to develop in time based on past experience. The problem then appears as this turns out to be a turning point for further escalation of the conflict as well as it causes mutual distrust.

Distrust (Lewicki, 2003) could also appear into calculus-based distrust and identification-based distrust. In CBD relationships, the focus is on a transactional exchange and calculations of the other's cost-benefit assessment of behaving in a trustworthy/untrustworthy manner. IBD relationships denote incompatible values and goals, and also a negative emotional attachment to the other (Lewicki, 2003).

Since the world is changing rapidly and the business world is seeking for new opportunities to develop business interactions, to save time and money, e-negotiation occurred as a new era in the negotiation process. Given the advent of the Internet and decision support systems, an increasing number of negotiations are conducted fully or partially via electronic media with or without human assistance and/or decision support aids. These negotiations are termed e-negotiations (Turel and Yuan, 2006). Negotiations are often conceptualized as a dance to reflect the interactive communication and decision making processes involved in them (Raiffa, 1982). The dancers need to trust various entities in order to be willing to participate in the dance, to perform well throughout the dance, to rely on their partner, and to positively evaluate the involved entities.

Trust is a very specific and important factor in e-negotiations. Turel and Yuan (2006) stated that the importance could be seen in two distinctions. First, trust in e-negotiations is a very important but yet relatively untapped, construct that may explain many user perceptions and behaviors. In the setting of e-negotiation trust is more important and more difficult to achieve than in the setting of purchasing well defined goods and services.

Second, trust is a more complex issue to investigate in the setting of e- negotiation than in other information systems contexts. Trust in the e-negotiations context has multiple facets because e-negotiations involve various parties, humans and information systems, which have different trust antecedents and consequences (Turel and Yuan, 2006).

Negotiations can be seen as a process to establish, define, or redefine the relationship between negotiating parties (Koeszegi, 2004). Much of the literature examines the relationship between parties that have never met before, that do not know, each other with no expectation for future relationship. In business world, though, professional negotiations occur in context in which parties have a past (and future) relationship, and whose relationship strongly affects the negotiation process (Lewicki, 2006).

There are different factors that influence the building of relationship in negotiation. Koeszegi, 2004 argues that individualistic and collectivistic cultures have distinct negotiation styles, derived from a fundamental philosophical difference of views about the relationship of individuals to their environment. For example, the Chinese culture is influenced by collectivism, where people are more interdependent on each other and group cooperation and harmony are priority issues. This can also be expressed in the Chinese negotiation style when they are searching for compromising and common ground, where they focus on more on the process as a whole instead the goal itself. The negotiation process is seen as an ongoing relationship, where the individuals search for adapting to the environment instead of manipulating it.

In contrast, in the individualistic cultures (western negotiators from UK, USA, Australia, etc.) it is more common to concentrate on transaction being a contractual arrangement rather than part of ongoing relationship. The individuals that individuals can freely manipulate the environment for their own purposes, furthermore, there is little attention paid to the need to cultivate personal relationships (Koeszegi, 2004).

When comparing the western negotiation style (individualistic cultures) and the Asian one (collectivistic cultures) experience shows that Asian negotiators are rather successful negotiators through the prism of the understanding about establishing relationship.

Another important issue is that relationship in negotiations could be seen as a prerequisite, a goal or an outcome of the whole process.

Relationship building as a precondition could be seen in high-context cultures (Asian cultures for example), where before even the real negotiation phase begins, the partners look for establishing a relationship which would be the base for continuing the negotiation process.

In contrast to the western negotiators, Chinese and other Asian negotiators focus on the ongoing relationship, on the position, instead of predetermined goals. In other words, establishing a good relationship with the partner is a primary goal for a negotiator from Asian culture.

Negotiation processes affect the relationships of the parties involved in the process. Negotiation behavior produces certain relationship outcomes. Lewicki and Litterer (1985) argue that if the parties adopt a competitive bargaining strategy in a negotiation, one relationship outcome is a commitment for the short term. On the other hand, if the parties adopt a cooperative bargaining strategy in a negotiation, the relationship may be perceived as a long-term commitment. These outcomes may apply even in situations in which no settlement has been reached in the negotiation. Regardless of the settlement, cooperative bargaining processes can lead to perceptions that the parties have gained increased understanding of one another, enhancing their relationship and setting the stage for future negotiations which could result in mutually satisfying outcomes.

The figure above shows, based on the findings of Lothar Katz (2006), how important is establishing a relationship in countries from different continents and cultures. Since not all the countries where covered, the figure is just to give a quick image of understanding how close do some countries adopt as part of their culture the importance of the relationship. The role of relationship building as a part of the negotiation process and style varies through the cultures. Lothar Katz (2006) makes a research on the features of different countries and cultures which reflect their specific negotiation behavior. The following section tends to summarize the findings discussed by Lothar Katz, showing the role of relationship building and its specifics through the prism of the cultural differences.

3.1.1. Establishing relation is crucial or doing business in Asia

Asian cultures are mostly strongly group-oriented. Belonging to a group, conforming to its norms, and maintaining harmony among its members is consider as of higher importance than individual preferences. Even though generations are changing and youth population tends to break the norms and rules, creating its own, building lasting and trusting personal relationships remains critically important. In most of the Asian countries it is expected establishing strong bonds prior to closing any deals and to continue developing them into true friendships as the business partnership continues. Consequently, proceed with serious business discussions only after your counterparts have become comfortable with you, and keep in touch on a regular basis during negotiations and beyond. Since in most Asian countries the orientation towards time is also different from most western countries, it is very important to remain patient and emphasize frequently the long-term benefits as well as your commitment to the business relationship you are seeking to build.

Relationships can create powerful networks. This makes relationship building vitally important when doing business in this culture. They are based on familiarity, respect, and personal trust.

In most of the countries business relationships exist between individuals or groups of people, not between companies. In these cases changing a key contact may require the relationship building process to start over. Even when you have won your local business partners' friendship and trust, they will not necessarily trust others from your company. That makes it very important to keep company interfaces unchanged.

India, Pakistan, Singapore are examples where both relationship between people and between companies are possible. India is placed in different circle as building lasting and trusting personal relationships is therefore important, though to a lesser degree than in other Asian countries. In Pakistan, for example, third party introductions can be very helpful as a starting point to building a trusting relationship.

South Korea is considered as the most individualistic country among the group-oriented countries in Asia. In contrast to Japan and China, it is possible to have personal discussions with your business partner. But still, even there, establishing relationship is a fundamental part of negotiation process.

All mentioned is true for the Philippines, though there getting to know the partner involves asking many questions about his/her family and personal background.

Remaining modest and doing everything you can to maintain cordial relations are crucial to your success. It is also important to remember that in Asian countries relationship depend on age, rank, degree and on one's achievements as well as on past experience with the party.

Western negotiation style could also be divided whereas some countries show higher attachment to relationship building towards the others and some like US negotiators are on the edge of the chain, which accounts for appreciating the predetermined goals a lot stronger than ongoing relationships.

Negotiation style is characterized with two different methods. Fisher and Ury (1986) described the hard approach, where the parties develop their egos which drive them to future actions in order to achieve the pre-determined company targets.

On the other hand is the soft approach, where “relationship maintenance” can provide a richer and more realistic approach (Vickers, 1970). The focus falls on the mutual interests.

European countries have some typical features of a western negotiation style but at the same time they are not as result-oriented and individualistic as Americans.

It is rather difficult to create a common look for all the European countries, as they vary a lot more than the Asian countries.

Still there are some characteristics that place the relationship building on a different stage in the negotiation process in comparison to other cultures and countries.

Building relationship in many of the countries, like France, is considered as very important, but is not necessarily seen as a precondition for initial business interaction. At the beginning most of the European partners appear to be reserved. This comes to a higher degree for countries like Austria, Germany, Czech Republic, etc. In other countries, like Belgium, it is best to give your counterparts time to become comfortable with you. Mutual trust matters and you will likely have to prove yourself first. Once trust has been established, there will be a sense of loyalty to you as a respected business partner, which can go a long way should a difficult situation arise.

In some European countries, like Denmark, business interactions are approached with suspicion and caution when the partners have never met before. But when trust is once established sense of loyalty and respect is build. Relationship building is possible not only between individuals but also between companies.

In most cases, unlike in Asian countries, if you introduce someone else from your company into an existing business relationship, that person may quickly be accepted as a valid business partner.

At the other end of the western negotiation style chain are countries like Greece, where relationship building is crucially important and establishing a strong bond is expected to happen prior to closing any deals. Interesting is that, unlike other European countries, Greeks tend to distrust people who appear unwilling to spend the time or whose motives for relationship building are unclear. The relationships are usually established between individuals and changing a key role player in a negotiation can cause starting the relationship building process to start over. Like in Pakistan, third party introductions can be very helpful as a starting point to building a trusting relationship with a potential partner. Relationship building can be a very time-consuming process that may require several trips to strengthen the bonds (Ireland).

United Kingdom is often considered as close to the US negotiation style. Although people in the country may emphasize near-term results over long-range objectives, they are generally more interested in building long-term relationships than in making quick deals.

USA is a special example where western style of negotiation is the most presented. In this country when the business relationship has become close, there will not necessarily be a strong sense of loyalty. American business people tend to focus on the near-term benefits of their business engagements and may drop even a long-term partner if they believe they will get ‘a better deal' elsewhere, focusing much more on the near future than on the past. In any case, most people in this country think it acceptable for partners in a productive business relationship to cooperate and compete at the same time, a view that others from strongly relationship-oriented cultures rarely share. Business relationships may play a greater role outside of the hectic large cities, though.

Latin American cultures are generally group-oriented. Asserting individual preferences may be seen as less important than having a sense of belonging to a group, conforming to its norms, and maintaining harmony among its members. Building lasting and trusting personal relationships is therefore very important in most of the countries, who often find it essential to establish strong bonds prior to closing any deals. People in Latin America prefer to do business with those they know, like, and trust. Establishing productive business cooperation requires a long-term perspective and commitment. Latin Americans tend to distrust people who appear unwilling to spend the time or whose motives for relationship building are unclear.

As in many Asian countries changing a key contact may require the relationship building process to start over.

Families play a dominant role in most of Latin America's societies and business life. Many companies are family owned or controlled (Mexico). Mexican families can be large and may extend into powerful networks that not only include extended family but also friends, business partners, and others. Maintaining honest and cordial relations is crucial.

Trust is an important factor prior a negotiation process. Creating a climate of trust could bring a collaborative atmosphere and thus increase the positive outcomes of the negotiation process. Creating trust has a certain influence on the business interactions and relationships, which is rather differently shaped depending on the cultural background. In an uncertain environment and existing of risk trust could contribute for more flexibility in the negotiation, mutual gains, and reshaping of the contracts. Trust is also a factor that directly influences the cooperation and thus the information sharing.

Relationship building and trust are strongly connected and both could be seen as cultural rules. The role of establishing a relationship as a part of the negotiation style varies through the cultures. But still the theory and practice suggest that establishing a strong relationship could ease future interactions, to contribute to trust building strategies as well as to transfer of trust over other negotiators.

References:

Barney, J. B. & M. H. Hansen (1994). "Trustworthiness as a Source of Competitive Advantage." Strategic Management Journal, Vol. 15, 175-190.

Fisher, R. and Ury, W. (1986), Getting to Yes: Negotiating Agreement without Giving in, Houghton Mifflin, Boston, MA.

Fukuyama, F. (1995). Trust: The social virtues and the creation of prosperity. London: Hamish Hamilton.

Lewicki, Roy J. and Edward C. Tomlinson. "Distrust." Beyond Intractability. Eds. Guy Burgess and Heidi Burgess. Conflict Research Consortium, University of Colorado, Boulder. Posted: December 2003

Lewicki, R. J., & Bunker, B. B. (1996). Developing and maintaining trust in work relationships. In R. M. Kramer & T. R. Tyler (Eds.), Trust in organizations: Frontiers of theory and research (pp. 114-139).

Lewicki, R. , Saunders D., Barry, B, (2006): “Negotiation”, McGraw Hill International Edition, p. 275-300

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Lewicki, Roy J., and Carolyn Wiethoff. (2000) Trust, Trust Development, and Trust Repair. In The Handbook of Conflict Resolution: Theory and Practice, edited by Morton Deutsch and Peter T. Coleman. San Francisco : Jossey-Bass Publishers.

Malhotra, Deepak and J. Keith Murnighan, The effects of contracts on interpersonal trust. Administrative Science quarterly, Vol. 47, No. 3 (2002), pp. 534-559. Jstor (29.12.06)

Mayer, R. C., Davis, J. H., & Schoorman, F. D. (1995). An integrative model of Organizational trust. Academy of Management Review, 20, 709-734.

McGinn K., (2004) : For Better or Worse: How Relationships Affect Negotiation. Negotiation Strategy

Ofir Turel Æ Yufei Yuan 2006 /Published online: 2 March 2007, _ Springer Science Business Media B.V. (2007): You can't shake hands with clenched fists: potential effects of trust assessments on the adoption of e-negotiation services

Raiffa H (1982) The art and science of negotiation. The Belknap Press of Harvard University Press, Cambridge, MA, USA

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Rosseue al .t. (1998) Third-party assurances: Mapping the road to trust in e-retailing

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Additional Literature:

Olekalns, Mara : Moments in Time: Turning Points, Trust and Outcomes in Dyadic Negotiations

Fernando Flores and Robert C. Solomon: CREATING TRUST

Yifeng , Tjosvold , Peiguan : Effects of warm-heartedness and reward distribution on negotiation

Brett, Okuiviura: Inter- and Intracultural Negotiation: U.S. And Japanese Negotiators

Leslie E Palich; Gary R Carini; Linda P Livingstone: Comparing American and Chinese negotiating styles: The influence of logic paradigm ; Thunderbird International Business Review; Nov/Dec 2002; 44, 6;

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