Our group, the Venture Group – a mother company in India, with as branch head, Mr Soota – received an offer to invest $2 million in a joint venture between Brigitte Zankyl GmbH in Munich and DXB-Al Fayed Corporation in Saudi Arabia. The proposed project was to build a plant in a small town near Riyadh to make blood transfusion tubes to sell in the Middle East. The German company had the technical expertise; the knowledge, capital and funding required was to be provided by our company. At this point, Venture was in the process of negotiating the contract.
DXB-Al Fayed was a partner in the business because it had managed to negotiate and win a favourable contract with the government for the purchase of the plastic tubes. The Saudi Arabian company was in a very comfortable position: it had no financial stake in the project and was a 35 per cent partner in the business by virtue of its good contacts with the Saudi government and its in-depth knowledge of the local market.
A few senior managers from our company were asked to go to Riyadh to explore the viability of the investment. Two weeks later, after our managers had returned, the company was more convinced than ever that this was going to be a wonderful project. We only had to wait for another three weeks since the German negotiating party was going to negotiate and conclude the contract after having received the necessary approval from us.
A large delegation of nine people, including lawyers from Germany, prepared themselves for the negotiations. On the first evening after negotiations had started, we heard by phone from the German side that things were looking good.
The next day, however, we received a call from the Saudi party. They informed us that they were not willing to sign any contract with the German party and, if possible, we should try instead to team up with them. Mr Habib commented on the phone: ‘I am sure that we can work with you, but Mr Zankyl and Mr Kirchdorfer are people we do not trust! We get the feeling that they are trying to fleece us. They are trying to pretend they are doing us a big favour; they think they are lords, but Allah is there watching us all. There is no place for being crooked. We have tried to work with Westerners before and they always try to be difficult. The only solution I can see is that we contract with you: you run the project. We don’t care if you outsource the technology and expertise from Brigitte Zankyl, but our only condition is that they do not become a partner in our business!’
Mr Soota was becoming concerned and, to try and diffuse the situation, asked Mr Habib to calm down.
‘Mr Habib’, he said, ‘I apologise on behalf of my business partners in case there has been any misunderstanding.
I am sure we can resolve the matter. Would you like me to fly down there early tomorrow morning so that we can resume discussions using a clean slate?’

Mr Habib appreciated Mr Soota’s remarks, adding: ‘I wish the German side could understand us as much as we understand each other. They do not care about what we think! All that matters to them is dollars, dollars and more dollars. Our esteemed minister Mr Sherrif gave us his word and promised us that, Insha’Allah, the government would sign the purchase contract next month, but the German lawyers told us that they would only like to see contracts in black and white and said that our word was not enough. Do they want to imply that, I, Sheikh Habib, am a liar? If they don’t trust us, then I have to be honest and admit that we do not even trust them since business should be for mutual benefit and not dictated. I am sorry, but please do not expect me to respect somebody who thinks that we are dishonest and unprofessional in our approach. Mr Kirchdorfer said that our small family concern needs to gear up and act more professionally to manage the new project! But we know how to run our business – we don’t need the Germans for that!’

Questions

1. Why do you think Mr Habib did not want to do business with Brigitte Zankyl GmbH?

2. In his analysis, the author of the case proposes four reasons for explaining what happened. What do you think is the most likely reason?

a) The two contracting parties had perhaps agreed on the first level of organisational integration but had unfortunately ignored the interpersonal and cultural integration aspect of organisational synthesis, which very much provides the necessary foundation for the success of any strategic alliance. Had both parties made a conscious and deliberate effort to understand one another as individuals with an appreciation for one another’s cultural bearing, perhaps the matters would not have got out of hand.

b) The Germans and the Arabs are at opposite extremes on the monochronic–polychronic scale, therefore communication did not take place in a normal manner. Furthermore, the exigencies of the Muslim religion often complicate the interchange of ideas even more. Yet, Arabs are used to dealing with foreigners and readily forgive them for not behaving like Arabs as long as they do not feel personally challenged and insulted.

c) In the negotiations, when the German experts in finance, marketing and law met their Arabic counterparts, the Germans’ approach was perhaps to try and clarify facts and determine who held the decision power. To the Germans, the Arabs appeared to be evasive and secretive, not revealing anything. For the Arabs, it was not just the ‘facts’ that the Germans seemed to be prying into, but also the mutual understandings between the leaders and themselves.

d) Having a ‘specific’ culture, the German managers perhaps found it particularly easy to insult their opposite ‘diffuse’ Arab partners. This is because they do not understand the principle of losing face, which is what happens when something is done that people perceive as being private. It can be inferred from the scenario that perhaps Mr Habib would have felt very insulted in front of his colleagues if the German contracting party had demanded proof of his claims about the government order.

3. What would have been the most appropriate attitude for the Germans to adopt? Explain your choice.

a) One serious pitfall for ‘universalist’ cultures (Germans) in doing business with the more ‘particularist’
ones (Saudi Arabians) is that the importance of the relationship is often ignored. The Germans saw the contract as definite, whereas the Arabs perhaps regarded it as only a rough guide or approximation.
For the Arabs, relationships have a flexibility and durability that contracts often lack. Particularists get suspicious when hurried. It is important to create a sound rational and trustworthy basis that equates the quality of the product with the quality of the personal relationship.

b) As close working relations develop among the alliance participants, psychological contracts, based on trust and shared goals, replace the formal alliance agreement. Firms that are adept at managing strategic alliances use a flexible approach, letting their alliances evolve as conditions change over time.
They not only allocate adequate resources and management attention to these relationships, but also integrate the organisations so that the appropriate points of contact and communication are managed.

c) The only solution for good communication for the ‘linear-active’ Germans should have been to make some concessions towards extroversion. Many find this difficult, even painful, but the rewards for doing so can be considerable. If people keep their distance, just like the Germans did in Riyadh, the Arabs will think that their own physical presence is considered distasteful, or that these people are cold individuals. Arabs speak volubly and earnestly to someone they like, so the contracting party should have also attempted to do the same. When talking business with Arabs, one must always do so against an intensely personal background.

4. What would you do next if you were in Mr Soota’s position? Explain why.