Cultural Differences When Negotiating the Purchase or Sale of a Business

Cultural Differences When Negotiating the Purchase or Sale of a Business

Negotiating the purchase or sale of a business always requires give and take. But the “take” can assume another dimension when the norms of another culture are part of the mix.

Culture profoundly influences how people think, communicate, and behave. It also affects the kinds of transactions they make and the way they negotiate them. *

As individuals, we bring different values to the negotiation. The norms of another culture can be disorienting even if it’s a path you’ve walked before. The way through–don’t put your cultural values on the other party and let your business broker guide you.

In negotiating, each side need to understand the other party’s position; when different cultures are involved, the broker needs to educate both sides to be more sensitive to what is and isn’t said and to be aware of cultural negotiating differences.

Interpreting what is and isn’t said

In buying or selling a business, price, terms, closing dates, diligence timelines, inclusions and exclusions, training, vendor financing, lease, and many other considerations are negotiable. The time and effort to negotiate any or all of these varies. Lawyers can take things off course—that’s for another post! It’s important NOT to take the negotiating tactics of the other party personally, or get caught up in the emotion of the situation.

Applying that advice when different cultures are involved can be more challenging. Acceptable protocol varies by culture so the potential for misunderstandings and strained relations increases.

I’ve travelled the world when it comes to the wide range of cultures I’ve worked with at my “Broker’s Table.” Some 40 per cent of our business sales are to first generation Canadians. I don’t want to stereotype any of them, only share from my experience.

My first experience with cultural negotiating differences was 40 years ago when I sold my home to a friend I had been at college with. We agreed upon price and terms and shook hands on the deal. I went home and told my wife that we had sold the house and told her what the deal was.

The friend went home and said to his wife “today I got him down to here. Let’s see what tomorrow brings.” He subsequently came back with requests for inclusion of washer, dryer, fridge, stove, drapes and blinds, etc. that had not been included in our original deal. Each day he pushed for more until I said “the deal is off and we are done.” At this point we reverted to the original agreement and closed the sale.

I recently closed a deal that went through a similar process:

The negotiations upfront reached an amicable agreement however over the coming month the seller came back with numerous requests for changes—all of which were advantageous for the seller and detrimental to the buyer. Some were accepted by the purchaser. In the end the seller requested that I drop our commission by $10,000 or they would cancel the deal as the net proceeds were not sufficient. I refused and invited them to cancel if that was what they wished to do. They did not cancel and after closing, the seller called to commend me on refusing to accept a lower commission. In his culture threats and persistence and ongoing pressure to improve the deal long after having reached agreement is considered good negotiation and is to be appreciated. Yet in another culture these tactics being used after having reached agreement are considered bad form.

Please let your broker do the negotiating – they know the thinking of both sides (what is important and what is not) and they understand the cultural differences.

Some cultures are comfortable haggling every detail throughout the negotiations—where they’ve come from it’s something they’ve done many times each day. You may buy a can of peas at the store without negotiating the price while in some cultures, they’re conditioned to offer less. Who do you think would be more experienced at negotiating?

Keep calm and carry on

Some cultures are conditioned to beat down the other side, so one “wins” and the other “loses.”

Some keep their cards to themselves, revealing little, simply saying no, no, no. After two and a half hours, it will seem like we’re getting nowhere. Yet they’ll come back afterward with a compromise. In some cultures, it is all about saving face with their peers and family. They need to be able to demonstrate a “win.”

Some cultures take the opposite approach, accepting everything until the very end when just before closing after the other side is committed to their next step in life, they want to reopen negotiations. Only then will they modify the offer, pushing for more.

Some cultures try overwhelming the other side with information and numbers—my lawyer says…, my accountant says…. Each party must be prepared to walk away at any time until the deal is done—do not make commitments for whatever is next until after closing.

Some failed negotiations result from buyers who think that the goal is to get the lowest price and the best terms possible. If the deal does not work for both sides it will not work at all. You should begin negotiations only after you have determined your BATNA—best alternative to a negotiated agreement. Be open to the suggestions of your broker. What seems unimportant to you may be critical to the other side.

A broker needs broad shoulders to buffer the two sides and to personally take the arrows without passing them on to the other side in order for each party to achieve their goals. And that is a key factor, as maintaining good relations between the buyer and seller are important. The deal has to work for both parties. They will have to work together after the deal is done to provide for smooth training and transition and that will not happen if they are negotiating directly. Use a broker with experience and skill to handle all of the negotiation—not your lawyer, accountant, or lender.

Want more tips on negotiating? See No pain, just gain—negotiating tips for buying or selling a business.

*The Ivey Business Journal: The top 10 ways that culture can affect your negotiation