Contracts Across Cultures Shao Guangqing

Outline Introduction Role and Importance of Contracts in Different Countries  USA  Japan  China  Russia Explicit and Implicit Styles of Agreements Styles of Honoring Contracts

Introduction Agreements must be kept. People around the world agree on this legal principle, which goes back all the way to the Roman Empire. Unfortunately, while everybody may agree in principle, interpretations of the meaning of “agreement” vary greatly across countries and cultures. At the individual level, this easily leads to misunderstandings and mutual disappointment. In the business world, different expectations and interpretations may also have severe consequences.

Role and Importance of Contracts in Different Countries USAJapanChinaRussia Importance of business contracts HL-M L Level of detail in business contracts HHM-HL-M H=HIGH M=MEDIUM L=LOW

Role and Importance of Contracts in Different Countries USAJapanChinaRussia Likelihood of legal action if a business contract is breached HLHL-M Dependability of legal system for business contract enforcement HHML-M

USA Americans consider business contracts important and prefer them to be highly detailed. The country’s legal system recognizes contracts as the valid representation of the agreement between the parties involved. Breaches of contract can quickly trigger threats of legal action, which is deemed acceptable once other attempts to resolve the issues have failed. The fact that one company is suing another does not necessarily mean that they will cease to do business with each other.

Japan Given the Japanese inclination to avoid uncertainty, contracts tend to be very detailed. They don‘t need to be signed, though. While the country’s legal system dependably supports the enforcement of contracts, Japanese companies almost never sue each other. Instead, they rely on the strength of mutual business relationships to resolve disagreements. If they cannot resolve issues, the Japanese look for mutually respected arbitrators to achieve out-of- court resolution.

China Contracts serve for clarification purposes. They do not exist to enforce the underlying agreements. While all relevant information should be included, Chinese contracts are usually not as detailed as those in Japan or in the U.S. Chinese expectations: since contractual terms & conditions aren’t ‘etched in stone’, business partners should work together to resolve differences and remain flexible as required to accommodate changes affecting the execution of the agreement.

Russia The realities of the business climate and legal system in Russia let the enforcement of contracts through legal action seem a lofty proposition. Most Russian businesspeople pay limited attention to contracts, keeping them high-level and documenting only the essentials of the underlying agreement. Should disagreements arise, pointing to a contract rarely changes behaviors. Instead, the parties may initially try to resolve their issues in a collaborative fashion. If that fails, they might resort to building political or economic pressure on the other side as a way to enforce the agreement.

Explicit and Implicit Styles of Agreements EXPLICITIMPLICIT Relationship of the parties Based on the contractBased on personal relations Communication between the parties Limited (brief) Verbal Formal Extensively (lengthy) Verbal and nonverbal Formal and informal

Explicit and Implicit Styles of Agreements EXPLICITIMPLICIT Exchange of promises in the contract detailed Obligations carefully explained Breaches clearly defined general Obligations not carefully explained Breaches not clearly defined

Explicit and Implicit Styles of Agreements EXPLICITIMPLICIT Time orientation Future can be predicted and is included in the contract Clear beginning and ending to time of agreement No future relationship or cooperation is assumed after contract is over. Future cannot be predicted and is not included in the contract No clear beginning and ending to time of agreement Future relationship or cooperation is assumed after contract is over.

Explicit and Implicit Styles of Agreements EXPLICITIMPLICIT Responsibilities of the two parties Responsibility is only to your company Conflicts of interest are accepted Belief that selfishness is natural in business If business transaction doesn’t work, each company tries to protect its interests Responsibility is to both companies Conflicts of interest are not common Belief in cooperation If business transaction doesn’t work, both companies tries to work together to solve the problem

Styles of Honoring Contracts The United States The written word is the most binding. The verbal word is not trusted. Written contracts are not flexible or easy to change.

Styles of Honoring Contracts Middle East The spoken word is often honored and followed more than the written word. It is common to continue negotiating what is in the contract even after a contract has been written and signed.

Styles of Honoring Contracts Nigeria Contracts are written or verbal, but the spoken word is often more important than the written word. Both types of contracts are very flexible and change as the situation changes.

Styles of Honoring Contracts Mexico The written word is more binding than the verbal word. The verbal word is used to ease relationships and not as a verbal contract. The written contract is flexible and changes as the situations change.