Cross-cultural business

38

Cross-Cultural Business: Behaviour Richard R. Gesteland

(Handelshojskolens Forlag, Copenhagen, 1997)

1. Patterns of Cross-Cultural Business Behavior

2. The 'Great Divide' Between Business Cultures: Relationship-Focus vs Deal-Focus

3. Deal First - or Relationship First?

4. Communicating Across The Great Divide: Direct vs Indirect Language

5. Formal vs Informal Business Cultures: Status, Hierarchies, Power and Respect

6. Orientation to Time and Scheduling: Rigid-Time vs Fluid-Time Cultures

7. Nonverbal Business Behavior: Expressive vs Reserved Cultures

Egypt; Finland; France; Germany; India; Japan; USA

1. Patterns of Cross-Cultural Business Behavior

Here are a few of the questions you will find answered in the pages that follow:

What cultural gaffe caused top executives of a major Saudi Arabian company to break off promising negotiations with a California firm?

Where did a Danish export manager go wrong when he lost a lucrative contract by inadvertently insulting a Mexican customer?

Why did a North American importer end up with 96,000 cotton shirts he couldn't sell because they were improperly labeled?

What did a world-famous European brewery do wrong to cause their Vietnamese partners to abruptly halt negotiations on a joint venture project?

Which all-important rules of protocol did a Canadian executive violate when he deeply offended a potential Egyptian customer?

How do successful global marketing companies such as McDonald's overcome troublesome cross-cultural variations in taste preferences?

Two Iron Rules of International Business

Why is a thorough knowledge of international business customs and practices especially important for export marketers? Because of Iron Rule # 1:

- In International Business the Seller Is Expected to Adapt to the Buyer.

The buyer in an international transaction is in the fortunate position of being able to largely ignore cultural differences. (Unless of course he or she wants to negotiate the best deal possible!)

What if you are not involved in exports. Suppose you are traveling abroad to negotiate a joint-venture agreement, an acquisition or a perhaps a strategic alliance? Now who is expected to do the adapting? That is where Iron Rule # 2 comes into play:

- In International Business the Visitor Is Expected to Observe Local Customs.

Is this just another way of saying, "When in Rome, do as the Romans do?" No. Actually, 1 disagree with that old saw. My advice is not to mimic or copy local behavior. Instead, just be yourself.

But of course 'being yourself' should include being aware of local sensitivities and generally honoring local customs, habits and traditions.

This book will have served its purpose if it helps prepare readers to follow the two Iron Rules. Let's start by previewing the Patterns of Cross-Cultural Business Behavior.

Deal-Focus vs Relationship-Focus

This is the 'Great Divide' between business cultures. Deal-focused (DF) people are fundamentally task-oriented while relationship-focused folks are more people-oriented.

Conflicts arise when deal-focused export marketers try to do business with prospects from relationship-focused markets. Many RF people find DF types pushy, aggressive and offensively blunt. In return DF types often consider their RF counterparts dilatory, vague and inscrutable.

Informal vs Formal Cultures

Problems occur when informal business travelers from relatively egalitarian cultures cross paths with more formal counterparts from hierarchical societies. Breezy informality offends high-status people from hierarchical cultures just as the status-consciousness of formal people may offend the egalitarian sensibilities of informal folks.

Rigid- Time vs Fluid- Time Cultures

One group of the world's societies worships the clock and venerates their Filofaxes. The other group is more relaxed about time and scheduling, focusing instead on the people around them.

Conflict arises because some rigid-time visitors regard their fluid-time brothers and sisters as lazy, undisciplined and rude while the latter often regard the former as arrogant martinets enslaved by arbitrary deadlines.

Expressive vs Reserved Cultures

Expressive people communicate in radically different ways from their more reserved counterparts. This is true whether they are communicating verbally, paraverbally or nonverbally. The confusion that results from these differences repeatedly spoils our best efforts to market, sell, source, negotiate or manage people across cultures.

Why? Because of course business communication is simply a specialized form of communicating. And the expressive/reserved split creates a communication gap that can be difficult to close.

Let us now move to Chapter Two where we explore The Great Divide.

2. The 'Great Divide' Between Business Cultures: Relationship-Focus vs Deal-Focus

Whether marketing, sourcing or negotiating a joint venture, the fundamental differences between relationship-focused (RF) and deal-focused (DF) markets impact our business success throughout the global marketplace.

Relationship-focused cultures make up the vast majority of the world's markets. The Arab world, Africa, Latin America and most countries of the Asia/Pacific region are strongly relationship-focused cultures. That is, they are markets where business people get things done through intricate networks of personal contacts.

RF people prefer to deal with family, friends and persons or groups well known to them - people who can be trusted. They are uncomfortable doing business with strangers, especially strangers who also happen to be foreigners.

Because of this key cultural value, relationship-oriented firms typically want to know their prospective business partners very well before talking business with them.

In contrast, the deal-focused approach is common in only a small part of the world. Strongly DF cultures are found mainly in northern Europe, North America, Australia and New Zealand, where people are relatively open to doing business with strangers.

A third group of cultures falls somewhere in between. Most southern and eastern Europeans tend to take a moderately deal-focused approach, as do increasing numbers of Hong Kongers and Singaporeans.

This 'Great Divide' between the world's cultures affects the way we conduct business from the beginning to the end of any commercial relationship. For starters, even the way we should make the first approach to potential buyers or partners depends upon whether they are in DF or RF cultures.

Fig. 2.1

DEAL-FOCUSED CULTURES: Nordic and Germanic Europe, Great Britain, North America, Australia and New Zealand, South Africa

MODERATELY DEAL FOCUSED: Latin Europe, Eastern Europe, The Mediterranean Region, Hong Kong, Singapore

RELATIONSHIP FOCUSED:, The Arab World, Most of Africa, Latin America, Most of Asia

Making Initial Contact

Because DF people are relatively open to dealing with strangers, export marketers can normally make direct contact with potential buyers in these markets. Let's take the United States as an example. Perhaps because they are raised in an immigrant and highly mobile society, Americans tend to be open to discussing business possibilities with people they don't know.

The success of telemarketing illustrates this openness. Each year Americans buy over $300 billion dollars worth of goods and services from total strangers - over the telephone. It works like this. Just as you reach for your fork to start eating dinner the phone rings, so you pick up the phone and hear a canned sales pitch. If you simply must have that miracle nose-hair trimmer or nuclear-powered toothbrush, you accept the offer and go back to eating dinner.

In this kind of deal-focused consumer marketing the only link between seller and buyer is a numerical one: the customer's telephone number.

Stranger-to-stranger marketing works fine in a strongly deal-focused culture like the USA. Of course even in America the larger and more complex the transaction, the more the buyer will want to know about the seller. But the point here is that in deal-focused cultures the marketer can make initial contact with the prospective buyer without any previous relationship or connection.

Obviously, a referral or introduction is always helpful even in DF markets. But that's exactly the point: they are helpful but not a requirement to success.

This contrast constitutes the first of the major differences between DF and RF markets. An example from the world of international business-to-business marketing will show how this key variable works in practice.

As the export manager for a Danish manufacturer, Denmark Widgets, Lars Larsen's intensive desk research has revealed that his company's product line has strong sales potential in two major markets, the USA and Japan.

Since DMW markets abroad through exclusive distributors, Lars next works up a shortlist of three potential importers in each of the two markets. These are firms which already market related products to the main end-users of widgets in the United States and Japan.

Now Lars needs to get in touch with these potential distributors. He has to meet each importer personally in order to evaluate them and select the firm which will do the best job for DMW. How does he go about getting in touch with the prospective importers in each of these two contrasting markets?

Fig. 2.2 Making Initial Contact: DF vs RF Cultures

Direct Contact  DF/USA ------------------------------ RF/Japan  Indirect Contact

Since the U.S. distributor candidates are likely to be open to dealing with strangers, Lars can contact them directly. All he has to do is put together a set of English-language brochures about DMW and its product line, write a brilliant cover letter requesting an appointment for a meeting and then mail the package off to his three American prospects.

Then a week or so later he picks up the telephone. "Good morning, this is Lars Ursen of Danmark Widgets. How are you today? Thanks, I'm fine too.

"Have you received the information we sent you last week? Oh good. Well, I'm going to be in the U. S. in a few weeks and would like to meet you for a discussion. Yes. Well, would the 14th be convenient for you?

"Splendid! We'll see you at nine o'clock then. I will confirm everything by fax today. See you on the 14th!"

And that's all there is to it. Making appointments in the USA is comparatively quick and easy if you have the right product or service to offer. And the reason it is quick and easy is that America is the quintessential deal-focused market. After all, Americans invented the 'cold call.'

If your marketing research has succeeded in identifying U.S. candidates who are in your line of business they will usually be quite willing sit down with you for a preliminary meeting after receiving your basic printed information followed by a brief phone call. That is how business people operate in deal-focused markets.

So our friend Lars makes two more phone calls to set up meeting dates with the other two candidates and his USA itinerary is complete.

Now it's time to tackle his Japanese schedule. After meeting with the American prospects Lars will fly from Los Angeles to Tokyo to meet the first of the three Japanese distributors. Is he going to send each of them that packet of information and then follow it up with a phone call?

No. Lars Larsen has done his cross-cultural homework, so he is aware that cold calls rarely work in strongly RF cultures like Japan. Since Danmark Widgets is not a world brand and not yet well know in Japan, Larsen's prospective partners will be unlikely to agree to a meeting based on a direct approach.

Japan is located at the opposite end of the DF-RF spectrum from the USA. That means Lars will get far better results by making indirect contact with his distributor candidates in Tokyo, Osaka and Nagoya. How does he go about doing that?

Often the best way to contact RF business partners is at an international trade show. That is where buyers look for suppliers, exporters seek importers and investors search for joint-venture partners. Business behavior at such exhibitions tends to be deal-focused because most of the attendees have come there for the express purpose of making business contacts.

Another good way to meet potential partners in RF markets is to join an official trade mission. All over the world today governments and trade associations are promoting their country's exports by organizing guided visits to new markets. The organizer of the trade mission sets up appointments with interested parties and provides formal introductions to them. These official introductions help break the ice, smoothing the way to a business relationship.

But suppose no widget trade show is scheduled for the next few months, nor is an official trade mission planned in the near future. There is one other proven way for Lars to make initial contact with his distributor candidates in Japan: he can arrange to be introduced by a trusted intermediary.

The Indirect Approach

Remember, RF firms do not do business with strangers. The proper way to approach someone who doesn't yet know you is to arrange for the right person or organization to introduce you. A third-party introduction bridges the relationship gap between you and the person or company you want to talk to.

The ideal introducer is a high-status person or organization known to both parties. So if you just happen to be good friends with a respected retired statesman who just happens to be well acquainted with one of your importer candidates, that's absolutely wonderful. Alas, such cases of serendipity are rare in the real world of international trade.

A good second best might be the commercial section of your country's embassy in the target market. Embassy officials tend to be accorded high status in relationship-oriented cultures, and of course it is part of their job to promote exports.

Chambers of commerce and trade associations are other potential introducers. And what about your bank? If you want to do business in Japan and your bank lacks strong representation there you had better look for an international bank which does.

Or perhaps one of your golf buddies works for a company which has an active office in Tokyo. Maybe they can put in a good word for you. Freight forwarders, ocean and airfreight carriers and international law and accounting firms are other good sources of effective introductions.

Recognizing the importance of third-party introductions in their RF culture, the Japanese External Trade Organization (JETRO) is also willing to provide that service to reputable foreign companies.

In fact, having a proper introduction in Japan is so critical that specialized consulting firms have come into existence there whose main function is to introduce those weird gaijin to Japanese companies. Of course, going the consulting route is likely to cost you a good deal more than the other ways of obtaining an introduction.

Pulling Guanxi

All over the RF world people get things done primarily through relatives, friends, contacts, connections, relationships. It's who you know that counts. The Chinese call these useful connections guanxi, a word well-known throughout East and Southeast Asia.

Of course, knowing the right people, having the right contacts helps get things done in deal-focused cultures as well. As so often when talking about cultural differences, it's a matter of degree. Even in an extremely DF market such as the U. S., people use 'pull' or 'clout' to get things done. Knowing the right person can often be very helpful indeed.

But there is still a key difference. In strongly R.F markets initiating a business relationship can only be done if you know the right people or if you can arrange to be introduced to them. just try setting up a joint venture in China for example without having guanxi or using someone else's guano.

The bottom line: In relationship-oriented markets plan to approach your potential customer or partner indirectly, whether via a trade show, a trade mission or a third-party introduction.

Although in this chapter we often refer to Japan, the indirect approach is also critical in South Korea, China, Saudi Arabia, Brazil, Mexico - in fact throughout the RF part of the world.

A case which took place in Singapore during the early 1990s illustrates just how essential introductions are to success in relationship-oriented markets, where people do not do business with strangers.

Case 2. 1: "Exporting To Taiwan: Guano In Action."

You are the newly-hired marketing manager of Glorious Paints, a Singapore manufacturer of heavy-duty marine paints and finishes. It is a fast-growing company headed by young, Western-educated directors.

Last year the marketing director led Glorious Paints to its first overseas sale, exporting a large quantity of paint to Australia and New Zealand. Director Anthony Tan achieved this sales success by using the classic marketing approach. He first sent a packet of information about the company and the product line to several potential importer/distributors along with a cover letter requesting an appointment.

Most of the prospects agreed to a meeting. Tan then visited each of the candidates at their Australian offices in order to evaluate them as possible Glorious Paint distributors. Three months later Anthony Tan signed a distribution agreement with the company he deemed best, and export volume to that region is already exceeding expectations.

Following that success you were hired to expand export sales to other Pacific Rim markets. Mr. Tan called you into his office to discuss market research showing that Taiwan is a very promising market with high demand and little domestic competition. He instructed you to set up distribution in Taiwan using the approach which had worked so well in Australia.

By searching various data bases you were able to come up with the names and contact information of some 55 Taiwanese importers, agents, representatives and wholesalers engaged in the paint business. Next you sent off information packets to these prospects with a cover letter requesting a meeting in Taiwan to discuss possible representation, expecting perhaps five or six of the companies to reply.

To everyone's surprise, six weeks went by without a single response. At a strategy meeting Tan pointed that many Taiwanese are uncomfortable corresponding in English, so you sent off a second mailing, this time in Chinese. But after another two months there was still no reply.

Director Tan is now upset with your lack of progress in this attractive market. He has called an urgent meeting for this afternoon and expects You to come up with a solution. As you sit stirring your tea the questions revolve in your head like the spoon in your teacup.

"What have I done wrong? This marketing approach worked fine with the Aussies. Why not with the Taiwanese? What do we do now?"

Because exporters are responsible for actively seeking overseas customers we might reasonably assume that contacts and connections are less important for international buyers. But managers engaged in global sourcing quickly learn the limits to this assumption.

First of all, exporters have to have a certain level of trust in their prospective buyers. Even letters of credit are not absolute guarantees of payments, and insisting on cash in advance somehow tends to restrict one's market potential. For that reason contacts and introductions can be as much a necessity for would-be overseas purchasers as for sellers.

The other problem is that not all resource markets are well organized or transparent, so that even buyers need local help in getting started. I spent a good part of my career managing international sourcing for a large U.S. company. This involved developing reliable and competitive sources of supply in the relationship-focused resource markets of the Middle East, Africa, Latin America and the Asia/Pacific region.

Dealing in Dhaka

Around 1989 we decided it was time to open a sourcing and quality control office in Bangladesh, a rapidly-growing exporter of garments. As regional director for South and Southeast Asia based in Singapore, this task fell to me.