Welcome to international business 2.0.
In globalization’s previous model, companies imported practices from their home culture when setting up operations abroad, said Robert Bontempo, a professor at Columbia Business School. But the new model “respects the ideas of other cultures,” he said. “Companies are now free to choose whichever ideas work best.”
At a China Business Initiative forum moderated by Bomtempo in May, titled “Innovation and Transformation,” panelists concurred that emerging market growth opportunities and the necessity of global reach more than offset barriers of culture, language, infrastructure, and inexperience. The greatest challenges, they said, come not from language or physical obstacles but from cultural differences.
One example: John M. Paterson, who was chief procurement officer for IBM in Shenzhen until his department was moved to Budapest in February, recalled “making the same stupid, clichéd mistakes that everybody makes” when he first came to Asia (initially to Japan). For example, “I assumed when there was no dissent that we were all in agreement,” he said. “I would head back to New York claiming victory only to receive a letter two weeks later that they’d decided to go somewhere else.”
Making It Work
It’s a delicate dance to establish common goals and value systems while recognizing individual approaches to doing business, the panelists noted. But “as long as you have a common objective, interaction can be remarkable,” said Richard H. Neiman, vice chairman of PricewaterhouseCoopers. Neiman was previously New York State’s Superintendent of Banks during the financially turbulent years of 2007-2011; while there, he worked extensively with the China Bank Regulatory Commission. “In regulatory reform, a large issue is not only how to harmonize rules but also how to act in a coordinated fashion,” said Neiman. “China has become a critical ally as the United States promotes banking reforms.”
In any cross-border relationship, it’s the job of local leaders to reinforce the organization’s overarching goals. Xiaobing Chang, chairman and CEO of China Unicom, China’s second-largest fixed-line and mobile telecom supplier, noted that provincial laws and practices in a country with a population of 1.3 billion often supersede national laws. In such a setting, choosing the right partner (a requirement not just in China but in many emerging markets) can mean the difference between success and failure. The partner, Chang said, should not only share your goals but also be adept at smoothing the way with the on-the-ground employees, customers, suppliers, and government officials.
East, But West Too
Differences may be particularly pronounced between Eastern and Western cultures, but they play a large role between similar countries, too. “When I joined IBM 40 years ago in Scotland, I learned to emulate the driven behavior of the brash Americans I worked with,” Paterson said. Although he found that the company’s Northern European employees shared a similar focused attitude, “nothing got done between the hours of noon and three p.m. in Southern Europe.” All employees, he said, embraced IBM’s goals, but “there’s a coexistence — and maybe a conflict — between national cultures and corporate cultures.”
The United States can be a particularly difficult environment for foreign companies to deal with, said the panelists, citing everything from SEC and banking laws to popular opinion. The group compared the current popular unease regarding China’s growing political and financial influence to a similar reaction to Japan in the 1970s. “There will always be protectionist forces against globalization and ways to keep out foreign influences,” agreed Bontempo, who cited America's public outcry when a Japanese company sought to purchase Rockefeller Center. “Finally somebody pointed out, ‘what are they going to do — take Rockefeller Center back to Tokyo with them?’”
Chang said that his company has forged cross-border relationships primarily while working with equipment makers, such as Apple. “Both companies love the iPhone, so we had to get married,” he allowed. (After the event came evidence that the love affair will continue: an Apple device compatible with China Unicom's mobile network received a network access license, suggesting Apple is a step closer to being able to sell its new iPad in China, according to news reports.)
Chang noted that cultural differences vary not just among countries but from company to company. For example, he acknowledged that Apple’s culture, as shaped by founder Steven Jobs, may not be the norm for American companies. And he acknowledged that China Unicom has encountered considerable cultural differences among the domestic companies it has purchased. “We strive to integrate our values and import our requirements for high productivity” among new employees, said Chang. “But we recognize acquisitions result in two corporations going forward.”
Xuejun (Henry) Zhao, CEO of Harvest Fund Management, related a serious shareholder issue involving Deutsche Bank, which owns 30 percent of the Beijing-headquartered asset manager. When Harvest wanted to establish a Hong Kong branch in 2008, “Deutsche Bank said they already had a business in Hong Kong, so that would make us competitors,” said Zhao.
Zhao’s approach was to win the trust of his German shareholder by building bridges. Hiring a Hong Kong CEO who was once a Deutsche Bank executive helped convince the Germans that Harvest understood their concerns. “Our cultures are somewhat different,” Zhao admitted, characterizing his German counterparts as very precise. “We learned to be very clear in dealing with conflict resolution.”
The Impact of Individuals
Corporations can put guidelines in place, but success hinges on how individuals from clashing cultures interact, the panelists said. “Trust and confidence so often comes down to personal relationships,” said Neiman. “People who like each other don’t hesitate to pick up the phone or email to reach out to an individual as opposed to an official within the organization when issues arise.”
Their best advice? Embrace diversity, but don’t abandon your own culture. “There used to be a view that personal and business lives shouldn’t mix,” observed Neiman. “But strength can come from both. Let your personality come out.”
Personal relationships take time to develop, of course. As State Banking Commissioner, Neiman recalled, early interactions with the People’s Bank of China involved multiple representatives of both parties sitting formally around a table, attended by photographers and translators. Eventually, outside of official meals and discussions, “you start asking about families and interests you have in common. You should never underestimate how that personal interaction enhances your professional relationships.”
“I’ve gotten better results and more work done over dinner and karaoke than in boardrooms,” agreed Paterson.
Paterson acknowledged the existence of structural and regulatory issues, but they aren’t unique to China. “There are probably more issues in Brazil than dealing with the Chinese. And Chinese companies wanting to set up businesses in the United States probably encounter more barriers than American companies entering China.”
In short, he said not to give national differences too much credit. “IBM has 15,000 to 20,000 people in China, and our relationship hasn’t been marked by any onerous issues or challenges.”