The impact of cultural differences on buyer–supplier negotiations: An experimental study

Abstract

In today's global economy, an ever-increasing number of companies are dealing with international partners, instigating a need to understand the impact of cultural differences on business interactions. Using Hall's distinction of high- and low-context culture, this study investigates the direct and moderating effects of cultural differences in dyadic buyer–supplier negotiations. Theory is developed regarding the impact of culture on joint profits, juxtaposing Transaction Cost Economics and the Relational View. The theory is tested with a negotiation experiment. Participants, classified by their country of origin, negotiate prices and quality levels for three products. This study finds that cultural differences within the negotiation dyad reduce joint profits when compared to dyads of participants with similar cultural backgrounds. Cultural differences also moderate the impact of trust and bargaining strategy on joint profits. Overall, this study concludes that cultural differences, as encountered in day-to-day business interactions in global supply chains, significantly impact negotiation outcomes.