Editor’s note: “International Business Corner” is a weekly column written by Joan Keston that provides information for people involved in or considering international operations. Keston is an international business consultant. Over the next several months she will be writing about important issues that international businesses face as they compete in the 21st century global business environment. This article addresses the basic difference between the U.S. business culture, a contract-based culture, and the business culture prevalent in the rest of the world, relationship-based cultures.
By Joan Keston, Keston & Associates
RALEIGH – Just what does contract-based business mean?
The US is a contract-based country when it comes to doing business. The written contract embodies the terms and conditions of the business transaction, and is relied on for the enforcement of that transaction. Our business culture relies almost exclusively on the written contract and not long-standing relationships for the vital aspects of the business transaction. The system works partly because both sides to the contract believe in the contract and basically trust the process, and because we have legislation and a judicial system that enforces that contract.
We meet business people on planes, we network, we cold-call executives, we contact university colleagues, we check our rolodexes filled with business cards…..we use whatever method works to begin or work a contact. Sometimes, we barely know the individuals representing a company when we begin negotiating a contract; even a contract worth values that could proportionately make or destroy our businesses. The strength of the contract is the force that enables this business culture.
Did you ever ask why we rely so heavily on attorneys when negotiating contracts? Part of their function is to foresee and address every possible occurrence and determine the treatment of that occurrence in advance, and to make sure that the contract itself will be enforceable under our legal system.
What Does Relationship-Based Mean?
One can safely say that the rest of the world is relationship-based. The network of long-standing relationships, friendships and family ties, and the importance of personal reputation are vital in these cultures to the negotiations and workings of the transactional relationship. Relationships are the leverage and the force that influence how the parties work through terms and conditions, address unforeseen occurrences, and determine how the contract is interpreted and, sometimes, whether it will be enforced.
Although, the industrialized world has established legal systems that respect and enforce contracts, relationships are an important part of the process. In developing countries relationships are vital. (There are many reasons for this, a discussion of which is beyond the scope of this article.)
Contracts are often intentionally ambiguous or written to collapse if certain events occur. Contract enforcement may depend exclusively on who you know, rendering its form as a legal document less important. The role of attorneys in the transactional process is also very different from that in the US. Attorneys are often seen as encumbering a transaction and thus brought in late in the negotiations.
As developing countries enter the global market place and financial markets, some of these attributes are changing and the legal tradition is developing.
Relationships are an important factor in developing and operating a successful business globally. Obviously you cannot hope to develop the kinds of relationships that exist among individuals of a country who have family ties or long-standing relationships that span decades or generations. Therefore, the individuals that you employ on your international bridge must understand the importance of relationships and either have the relationships themselves or know how to build a network of relationships in the culture.
About the author: Joan Keston is the Managing Principal of Keston & Associates, Ltd., an international business consulting firm located in Raleigh, NC, and a Partner at Paladin and Associates, Inc. She has 25 twenty-five years of experience with mature as well as entrepreneurial companies, domestically and internationally, coupled with an executive managerial and legal background. Her firm facilitates international business transactions, and assists companies establish, grow and integrate their international operations. She can be reached at (919) 881-7764 and email@example.com.