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 organizational integration but had unfortunately ignored the inter-personal and cultural integration aspect of organizational 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 Mr. Habib would have perhaps felt very insulted in front of his colleagues if the German contracting party had demanded proof of his claims about the government order. Bad blood 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.