Understanding the Importance of Culture in Global Business

The companies that will grow in the coming decades will dominate business across cultures.

Our economic development will forever be determined by our ability to succeed internationally. PwC forecasts India's real annual GDP growth to 2050 at 8.9 per cent, Vietnam's at 8.8 per cent and China's at 5.9 per cent. The list of high-growth emerging markets can be continued indefinitely. The forecast for the USA is a meagre 2.4 percent, comparable to most Western economies. The indigenous companies that are likely to see increasing growth in the coming decades are those that not only operate internationally, but also develop the strategic capabilities to master business across cultures. Cross-cultural core competency is at the heart of today's sustainable competitive advantage.

If you are asked to manage a supply chain in Malaysia one day, lead your virtual team in China the next, and optimise your company's call centre in India the day after that, you know that it is simply 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 core competencies across cultures.

If I tell you that in a sales call in the United States, the acceptable physical proximity between you and your prospect is 2.5 feet, I have achieved the equivalent of a fisherman handing you a fish. If instead I demonstrate how uncomfortable you are when I greet you and then shake your hand while standing six inches from your face, I have achieved the equivalent of teaching you how to fish. You now know that every culture has a certain acceptable proximity. By sheer observation you have added this to your intercultural tool belt. The next time you get off a plane anywhere in the world, you will look around and observe how far apart people are standing, store this information somewhere in your busy brain, and go to your next meeting armed with this information to avoid immediate discomfort and a possible disconnect that could jeopardise business with your international counterpart.

Now imagine that you could gradually extend this simple metaphor 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 influence on our reactions and decisions in relation to everyday facts and circumstances.

Why is intercultural competence crucial for your professional future and the survival of your business? It is ubiquitous in every business interaction and strategic decision. According to an Accenture study in May 2006, optimising this process through training can increase productivity by 30 per cent. For example, when a company's marketing manager launches a campaign to demonstrate how fast its service is, if the underlying cultural motivation of the international customer is almost entirely focused on customer service, the value proposition is to sell ice cream in winter - there's plenty of it, and it was never intended to be.

It is not feasible to be an expert on all cultures of the world. However, it is possible to incorporate a cross-cultural framework that enhances cross-cultural understanding and interactions. One such framework, the Business Model of Intercultural Analysis [BMIA™], uses the following six "lenses of understanding" to examine company-wide cross-cultural challenges: cultural issues, communication, group dynamics, "glocalisation", process design and time orientation. Let's examine some examples of American leaders interacting with Chinese leaders to illustrate how some of these lenses of understanding affect business.

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Cultural issues

Every society has its own "cultural themes" that have a significant impact on how that culture does business. Chinese cultural themes are rooted in folk beliefs and Confucian values, such as filial piety, thrift, perseverance and trustworthiness. These values are deeply embedded in the Chinese psyche. The Confucian value of perseverance has a profound impact on the business process. Members of a Chinese negotiating team will seek protracted negotiations to test the endurance of their counterpart. Therefore, they typically start with an unimaginably low offer to allow for extensive haggling to demonstrate perseverance and to assess their opponent's stamina. The ignorant Westerner might misinterpret this as inappropriate and storm out of the meeting instead of participating in the "haggling dance" that the Chinese manager sees as normal and expected. Total disengagement leads to loss of business opportunities or leaves dollars on the table as the exhausted Westerner, unprepared for the duration of the exchange, makes price concessions far too early.

Communication

Understanding the subtle challenges of using English with non-native speakers, as well as the nuances of non-verbal communication, is critical to achieving business goals when working cross-culturally. In East Asian cultures, communication is very subtle and indirect. Therefore, despite the best of intentions, the direct style of Western communication can easily cause serious upset. For example, the word "no" is rarely used in preference to more indirect methods of communication, and an American may hear the Chinese cue for the word "no" - including the phrases "maybe", "we'll see" and "we'll check" without ever realising that these phrases are the Chinese equivalent of "no". Not understanding these keywords wastes time and money and is the basis for communication errors that can jeopardise the business goal. Not understanding simple but subtle things in communication can also cause both you and your counterpart to lose face. A loss of face for your Chinese counterpart is devastating for the business relationship and often irreparable - which in turn leads to a loss of opportunities.

Group dynamics

This lens of understanding involves understanding how individuals from certain cultures interact in groups. Understanding group dynamics in the target culture has a significant impact on the sales process. In individualistic cultures, such as the US, customers make most of their purchasing decisions individually, while 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 sitting at the negotiating table because that person is the chairman of the company, the shots may be fired by people who are not present (e.g. father, grandfather or uncle). In China, a highly collectivist culture, marketing materials and the sales process must focus on the group rather than the individual.

Glocalization

Global branding, messaging, corporate values and marketing all need to be localised - hence the term 'glocalization'. If a company's headquarters is in Asia and there are satellite offices in Europe and North America, the global brand, messaging and indeed any kind of communication, internal or external, must be translated in a way that is culturally fluent - not just linguistically fluent. The value proposition of any communication may well be valid, but if it is presented in a way that cannot be 'heard' or that goes against cultural norms or expectations, then the message, however significant, will fall on deaf ears.

Imagine the financial loss when Disney opened "Euro Disney" in Paris and made the following mistakes:

Naming the equivalent of "Dollar Disney" - because "Euro" is the name Europeans associate with their currency, not the abbreviation for their continent
Using plastic cutlery in a country that prides itself on its culinary experience
The touting of Mickey Mouse and other characters as childhood heroes at the expense of society's actual cartoon icons
Ignoring the need to provide kennels for a culture that so often travels with dogs
Ignoring the "product unfriendliness" of product instructions in English (despite the fact that most products were ready to use)
The failure to offer wine with meals

This failure to "glocalise", among other strategic go-to-market mistakes, cost them dearly: After only two years of operation, they ran out of money and had to borrow $175 million to keep the business going.

Process engineering

There is a significant difference between a multinational company and a truly global company. The difference is that a multinational simply operates in multiple countries; a global company has set out to systematically update its policies, procedures and systems across multiple cultures. Some of the biggest challenges are often IT-related. Even with the incredible advances in modern technology, global organisations still suffer from programme and platform inconsistencies. When technological practicality or budget does not allow for full integration, this discrepancy must be assessed and corrected. At the very least, all branches in operations need to "know what they don't know" in terms of business processes, IT systems and the implementation of global policies and procedures to ensure maximum efficiency, risk mitigation and cost optimisation. A typical example is requests from the finance department at headquarters in the US, which requests financial reports from field offices around the world. The platform at headquarters may be able to generate the report with the specific information and format requested in the blink of an eye (or at least a mouse click), but a satellite office in Senegal may need a programmer or an expert with an Excel spreadsheet over the course of a week to achieve the same result. Knowing means setting reasonable expectations for the result to be delivered.

Time orientation

The concept of time orientation refers to the way a society values, executes and uses time. In Western cultures, time is a commodity. If you are not early, you are 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 is supposed to" and is characterised as flexible and elastic. The most striking difference between China and Western cultures in this regard is the long-term orientation of Chinese culture. The culture has survived for thousands of years, surviving floods and famines and being invaded from all sides by various powers. The longevity of the culture, combined with Confucian philosophy, leads to a long-term orientation that is reflected in the business world in various ways. Short-term waste in a supply chain, for example, is disdained because thrift is a significant virtue, but lavish spending can be made on training that leads to long-term business growth. Business planning is not done quarterly or annually, but is often foreseen for the next decade or even decades.

Harnessing the power of culture

While the US has enjoyed decades of economic prosperity at home, recent economic challenges remind us that our future economic success depends on whether we succeed in the global economy. It is not about who is bigger, better, smarter or faster; it is about who is able to harness the power of culture to optimise a company's bottom line. Cross-cultural differences have proven time and again to be the biggest obstacle to successful international ventures and projects. These obstacles can be turned into opportunities if a framework is created to address them head-on.