Understanding the Importance of Culture in Global Business
Denise Pirrotti Hummel, May 2012
Our economic development will forever be defined as our ability to succeed internationally. PwC forecasts India’s real annual GDP growth until 2050 at 8.9 percent, Vietnam’s at 8.8 percent, and China’s at 5.9 percent. The list of fast-growing emerging markets goes on and on. The U.S. forecast is a meager 2.4 percent, comparable with most Western economies. The domestic companies that are likely to see incremental growth in the coming decades are those that are not only doing business internationally, but that are developing the strategic skill set to master doing business across cultures. Cross-cultural core competence is at the crux of today’s sustainable competitive advantage.
If one day you’re asked to manage a supply chain in Malaysia, the next day you’re managing your virtual team in China, and the next you’re optimizing your company’s call center in India, you know that it’s just not possible to be an expert in every culture or geography in which you do business. What is possible is developing the mindset of a globalist — or, in other words, mastering cross-cultural core competency.
If I tell you that when you engage in a sales call in the United States, the acceptable spatial proximity between you and your prospect is 2.5 feet, I have accomplished the equivalent of a fisherman giving you a fish. If I demonstrate to you, instead, how uncomfortable you feel when I say hello and proceed to shake your hand while standing 6 inches from your face, I have accomplished the equivalent of teaching you to fish. You now know that every culture has a specific, acceptable space proximity. By sheer observation, you have added this to your cross-cultural tool belt. The next time you get off the plane anywhere in the world, you will look around and observe how far apart people are standing, log that information somewhere in your busy brain, and proceed to your next meeting armed with information that will avoid instant discomfort and a potential disconnect that may jeopardize business with your international counterpart.
Now imagine if you could augment this simplistic metaphor incrementally, to every aspect in which culture impacts business.
A Framework for Understanding
Culture has many definitions. My own definition is that culture is our collective experience as a society, and its impact on our reaction and decision-making relative to every-day facts and circumstances.
Why is cross-cultural competence critical to your professional future and the viability of your company? It’s omnipresent in every business interaction and strategic decision. According to a May 2006 Accenture study, optimizing this process through training can increase productivity by 30 percent. For example, if a company’s director of marketing embarks on a campaign demonstrating how speedy its service is, when the underlying cultural motivation of the international customer is almost completely focused on customer service, the value proposition consists of selling ice in the wintertime — there’s plenty of it, and it was never wanted to begin with.
It is not feasible to be an expert on all the world’s cultures. It is possible, however, to incorporate a cross-cultural framework that improves cross-cultural understanding and interactions. One such framework, the Business Model of Intercultural Analysis [BMIA™], uses the following six “comprehension lenses” to examine enterprise-wide cross cultural challenges: cultural themes, communication, group dynamics, ‘glocalization,’ process engineering, and time orientation. Let us examine some examples of American executives interacting with Chinese executives to illustrate how a few of these comprehension lenses impact business.
Every society has its own “cultural themes,” which have a substantial impact on how that culture does business. Chinese cultural themes are rooted in folk belief and Confucian values, including filial piety, thrift, endurance, and trustworthiness. These values are deeply engrained in the Chinese psyche. The Confucian value of endurance has a profound impact on the business process. The members of a Chinese negotiations team will seek protracted negotiations to test their counterpart’s endurance. They will, therefore, typically initiate with an offer that is inconceivably low to enable extensive haggling, so as to demonstrate endurance and evaluate an adversary’s endurance. The unwitting Westerner may misinterpret this as unreasonable and storm out of the meeting, instead of participating in the “haggling dance” the Chinese executive is eagerly anticipating as normal and expected. The total disconnect causes a loss of business opportunity, or alternatively, leaves dollars on the table as the exhausted Westerner, unprepared for the duration of the exchange, makes price concessions way too early.
An understanding of the subtle challenges in the use of English with non-native speakers, as well as the nuances of non-verbal communication, is critical to achieving business objectives when operating across cultures. In East Asian cultures, communication is very subtle and indirect. Thus, the direct style of Western communication can easily create serious offense, despite the best of intentions. The term “no,” for example, is rarely used in deference to more indirect methods of communicating and an American may hear the Chinese cue for the word “no” — including the phrases “maybe,” “we shall see” and “we shall study it,” without ever realizing that these phrases are the Chinese equivalent of “no.” Failure to understand these cues wastes time and money, and is the basis of communication failure that can jeopardize the business objective. Failure to understand simple but subtle issues in communication may also cause both you and your counterpart to lose face. Creating a loss of face for your Chinese counterpart is devastating to the business relationship and often unrecoverable — leading once again to loss of opportunity.
This comprehension lens involves the understanding of how individuals from certain cultures interact in groups. An understanding of group dynamics in the target culture significantly impacts the sales process. In individualistic cultures, such as the United States, customers make most of their buying decisions individually, whereas in collectivistic cultures, decisions are significantly influenced by the group (family, extended family, network of friends and colleagues, and the community at large). While the decision-maker may appear to be at the negotiation table because that individual is the chairman of the company, the shots may be being called by individuals not present (father, grandfather or uncle, for example). In China, a highly collectivist culture, the marketing collateral and sales process needs to be targeted toward the group, and not toward the individual.
Global branding, messaging, corporate values, and marketing all have to be localized — thus the term “glocalization.” If a company’s headquarters is in Asia, with satellite offices in Europe and North America, the global brand, messaging, and indeed every type of communication, whether internal or external, needs to be translated in a way that is culturally fluent — not merely linguistically fluent. The value proposition of any communication may be entirely valid, but if it is presented in a way that cannot be “heard,” or that violates cultural norms or expectations, then the messaging, however significant, will fall on deaf ears.
Picture the financial loss when Disney opened “Euro Disney” in Paris and made the following mistakes:
• Naming it the equivalent of “Dollar Disney” — as “Euro” is the nomenclature is associated by Europeans as their currency, not an abbreviation for their continent
• Using plastic cutlery in a country that prides itself in the culinary experience
• Touting Mickey Mouse and other characters as childhood heroes at the expense of the society’s actual childhood cartoon icons
• Ignoring the necessity of providing kennels to a culture that so frequently travels with dogs
• Not considering the “product unfriendliness” of having product instructions in English (despite the fact that most products were ready-to-use)
• Not offering wine with meals
That failure to “glocalize,” among other strategic go-to-market mistakes, cost them dearly: After only two years in operation, they ran out of cash and had to borrow 175 million dollars to keep operating.
There is a significant difference between a company that is multinational, and a company that is truly global. The difference is that a multinational company simply operates in multiple nations; a global company has embarked upon the journey of systematically updating its policies, procedures, and systems across multiple cultures. Some of the most significant challenges are often IT-related. Even given the incredible advances in modern-day technology, global companies still suffer from program and platform inconsistencies. Where technological practicality or the realities of budget do not permit complete integration, that disconnect must be evaluated and corrected. At a minimum, all offices in the operation must “know what they don’t know” regarding the business processes, IT systems, and the roll-out of global policy and procedure, to assure maximum efficiency, risk reduction and cost optimization. Typical examples include requests from finance in HQ in the United States requesting financial reports from satellite offices around the world. The HQ platform might have the capability to generate the report with the specific information and format requested in a blink of an eye (or at least the click of a mouse), but a satellite office in Senegal might require a programmer or a wiz with an excel spreadsheet over the course of a week to effectuate the same result. Knowing means that reasonable expectations for the deliverable can be set.
The concept of time orientation refers to the way in which a society values, executes and utilizes time. In Western cultures, time is a commodity. If you’re not early, you’re late. Time is money. Time is divided into the sixty minutes of a standard clock. In two-thirds of the world, time happens “when it’s supposed to,” and is characterized as flexible and elastic. The most striking difference between China and Western cultures in this regard is the long-term orientation of the Chinese culture. The culture has survived for thousands of years, through flood and famine and having been invaded on all sides by multiple forces. The longevity of the culture combined with Confucian philosophy yields a long-term orientation that materializes in the business world in several ways. Short-term wastefulness in a supply chain, for example, is despised because thrift is a significant virtue, but professional development training that will lead to long-term corporate growth may see lavish expenditures. Business planning is not quarterly or annual, but often is anticipated for the next decade, or even decades.
Leveraging the Power of Culture
While the U.S. has enjoyed decades of domestic economic prosperity, recent economic challenges remind us that our future economic success revolves around succeeding in the global economy. It’s not about who’s bigger, better, brighter, or faster; it’s about who is empowered to leverage the power of culture to optimize an organization’s bottom line. Cross-cultural differences have time and time again been identified as the most significant impediment to successful international ventures and projects. These obstacles can be transformed into opportunities with a framework for tackling them head-on.