UGANDA MANAGEMENT INSTITUTE

COURSE: PSCM (Mbarara Outreach centre)

NAME: ELYANU PATRICK EDIKU

REG NO: PSCM/MBR/013

MODULE: INTERNATIONAL PROCUREMENT MANAGEMENT

CONSULTANT: MR. MUGURUSI GODFREY

Question

‘Procurement practitioners of tomorrow need to fully comprehend the cultural dynamics of

various countries around the world as they plan and negotiate international procurement
contracts’

Discuss how cultural elements could influence outcomes of an international contract.

Instructions:

Submit word processed document

Min 2 and max 3 pgs; excluding cover and ref pgs

Dead line 24th Oct 2010

Culture is defined as the integrated system of learned behavior patterns that are distinguishing
characteristics of the members of any given society, including everything that a group thinks,
says, does and makes – its customs, religion, language, material artifacts and shared systems of
attitudes and feelings. Understanding culture involves understanding people, which is, as we all
know, an extremely difficult task. All Procurement practitioners operating globally need to have
some degree of cultural awareness. Figure 1 below illustrates extent to which a procurement
practitioner needs to understand global cultures at different levels of involvement in
procurement. The further a company moves out from the sole role of doing domestic
procurement, the more it needs to understand cultural differences. Moving outward on more than
one axis simultaneously makes the need for building cultural awareness even more essential.

Figure 1. Cultural Awareness and Extent of Global Involvement

Culture is most often viewed as the language or religion of a country, but there is obviously more
to culture than these two components. (Hofstede’s model). A successful procurement practitioner
must know what cultural matters may affect developing relationships and outcomes of an
international contract. The cultural elements that could influence outcomes of an international
contract

Language

Financial issues are very much affected by language. Negotiations between a buyer and seller
include price, delivery dates, shipping methods, and methods of payment. If either party is not
completely fluent in the other party’s language, misunderstandings may arise which could lead to
late payment or no payment at all. This situation may also arise between individuals who speak
the “same” language as well. Consider the differences in word connotations and spelling between
the English spoken in the US, UK, Australia, South Africa, and New Zealand. English isn’t the
same English everywhere.

Religion

In countries where Islam is the predominant religion, Sharia law is the body of Islamic law
which regulates the public and some private aspects of life. Islamic law prohibits usury, the
collection and payment of interest, and prohibits trading in financial risk (which is considered a
form of gambling). Islamic law also prohibits investing in businesses that are considered
unlawful (businesses that sell alcohol or pork, or businesses that produce media such as gossip
columns or pornography, which are contrary to Islamic values). These prohibitions may limit
international procurements dealings with companies located in the countries that practice Sharia
law.

Another example of religion affecting financial transactions can be found in Israel. During the
Passover season businesses are not allowed to come in contact with or inventory any products
that contain yeast, which means destroying the product or selling it prior to Passover. Unless
previous arrangements are made, this situation could increase the cost of products, or lead to
spoilage and loss of inventory.

Corruption

The level of corruption that is present in a system will affect how business is conducted between
companies as well as the interaction or payment required by government or other officials. Being
aware of the potential situation and the possible added costs to procurements it’s therefore
important for procurement practitioners to prepare for that. In most cases where corruption is
involved in a contract, parties dealing in this contract tend to disagree when its time to share and
this can influence the outcome of the contract

Government Involvement

The culture of a country may also determine the level of government involvement that is present
in a market. Laws developed based on a society and its religion will ultimately impact the
business law structure of the country as well. Issues that procurement practitioners may
encounter include these:

 Cultures that prefer to litigate over a dispute versus those that prefer to arbitrate or
mediate
 Inclusive versus exclusive statements: many countries in the Middle East will not allow
product to pass through Israel and its may affect a contract if this is introduced at the last
stages.

US do not allow exclusionary statements such as this to be made in business documents. All of
the above issues may cause delays.
Power distance

This is the extent to which less powerful members of institutions and organizations within a
country expect and accept that power is distributed unequally.” In countries with high power
distance employees are too afraid to express their doubts and disagreements with their autocratic
and paternalistic bosses. The index for power distance describes the dependence of relationships
in a country.
Reference:

Roy Morledge, Adrian Smith, Dean T. Kashiwagi (2006). Building procurement

Hofstede, G. (1997). Cultures and Organizations: Software of the mind. New York: McGraw
Hill.

Class notes