Culture and Negotiating Practices: The Relevance of the Institutional Perspective

Abstract

The advent of globalization has brought with it an increased emphasis on international business activity. Cross-border trading, joint ventures, strategic alliances, and/or partnerships with host country governments have become increasingly commonplace. As managers cross borders to negotiate and renegotiate transactions, they are confronted not only with cultural differences, but more broadly with institutional differences that may directly or indirectly affect the ease with which partners are able to create value jointly together. Consider, for example, the development of power projects in India. When India opened up to foreign investors in 1991 a number of foreign power producers sought to develop power projects in the country. The Indian government recognized the chronic shortage of power in the country and cleared the way for eight fast-track projects in the power sector. Of these eight projects, only one was eventually successful.¹ The most spectacular failure was no doubt Enron’s Dabhol project, in which the parties negotiated and renegotiated, but ultimately to no avail. The power plant was constructed but shut down by Enron in 2001 over a dispute with the Maharashtra State Electricity Board as to what the parties owed each other. It took another five years for the dispute to reach a satisfactory conclusion: the plant is now being run by two Indian firms. In the midst of all of this, Enron went bankrupt in 2001 and sold its stake to GE and Bechtel, which were Enron’s partners in the deal.²