As business markets are becoming increasingly globalized, it is important for managers to communicate effectively with their partners from other cultures when negotiating business contracts. A new research paper from Richard Ivey School of Business helps firms to better understand their international business dealings and encourage more business worldwide.
Dina Ribbink, professor of operations management at Ivey Business School in London, Ont., cites in her research that cultural differences can affect written contracts in international business settings. For instance, international contracts tend to include more detail and clauses as cultural distance increases between the two negotiating parties. Ribbink’s findings are consistent along the cultural-distance continuum.
Although most managers generally understand the importance of cultural differences in negotiations, they are not always aware that these differences play out in contract-writing as well. “It is something that managers need to take into account when dealing internationally,” says Ribbink.
Ribbink suggests that managers should standardize their contracts within each culture to reflect distinct differences for each international firm. Using Asia as an example: “Managers shouldn’t use the same contract with a party in Asia as they would in their own country,” Ribbink says. “Because an Asian party might understand the contract differently or not understand it completely, additional clauses might be needed.”
At the same time, Ribbink points out that it is important for managers to incorporate flexibility into their international contracts. Both standardization and flexibility are tools that managers should make use of during contract negotiations with firms from other cultures.
Details of the research were released in the March edition of Impact, an online monthly publication featuring research from faculty at the Richard Ivey School of Business.