Navigating cultural differences

Date: 2015-10-07; view: 570.

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Discuss the role of organizational culture in the company operation

By Emma Jacobs

Walking through a labyrinthine tunnel apparently made of purple, lime and yellow-coloured lights may not be an obvious route to boosting a bank's profits. But HSBC hopes its sponsorship of an exhibition by Brazilian artist Ernesto Neto in London may help to do just that.

The bank, known for its “world's local bank” slogan, has backed this summer's Festival Brazil, a programme of cultural activities at London's South Bank Centre celebrating the country that is predicted to be the world's fifth-largest economy by 2025. Marah Winn-Moon, HSBC's global head of cultural sponsorship, says such events are integral to a strategy that posits understanding different cultures as key to developing successful business relations. “Individual consumers might see Brazil from a different perspective and break down stereotypes about Brazil, not just being about carnival. They might work for an SME and HSBC might provide an entry point for operating in Brazil,” she says.

David Kotheimer, deputy chief executive of HSBC Brazil , an American who worked in London before moving to Sгo Paolo last year, believes the festival helps business. “Understanding the creativity in the culture, you get a sense of the country and that helps spot opportunities to expand the bank's business,” he says.

Colin Tweedy, chief executive of Arts & Business, a UK body that encourages private investment in the arts, sees this as “cultural diplomacy”, which he describes as “extending the company's brand into a foreign market”. Such marketing strategies are only effective, he says, if the companies are prepared to work at “getting people, including foreign journalists and trade emissaries, to engage with these events”.

HSBC, for example, is also involved in a parallel programme of business seminars and conferences about operating in Brazil, including a research project with The Economist, conferences with the Financial Times and a publication with Time Out magazine. Celebration of a country's difference runs counter to the notion that the world is becoming culturally homogenized through the spread of the internet, the internationalisation of business and the development of a cadre of high-flying MBAs that appear to speak the same business language.

Such a belief can fool managers into believing cultural differences do not matter, according to Paul Bennett, chief creative officer and managing partner at Ideo, a global innovation and design consultancy. In fact, he says, global companies must understand different cultures and turn that to business advantage: “It's the understanding of the subtletiesthat are important.”

As Maarten Nijhoff Asser, consultant at Trompenaars Hampden-Turner, which advises companies on cross-cultural challenges, says: “If your strategy is just growth without thinking about adapting to local markets, then you are just the Royal Bank of Scotland and you will falter. Too many companies don't listen. It can be long-winded, but it is ultimately more successful.”

All companies, says Andrew Kakab­adse, professor of international management development at Cranfield School of Management, have done localization “badly at some point”. The key to making it work is “clarity of strategy”, which is formed “when a company interrogates itself about what it's really good at”, he says.

One global brand that has adapted to local tastes is fast-food chain McDonald's. From the beginning of its development in the US, to its spread in Europe and, more recently, India and China, the company has targeted a variety of products at consumers in different markets.

Key to its successful localization has been research and investment in products adapted to local tastes.

Big Macs were never going to succeed in India, where 80 per cent of people do not eat beef. But the company did not treat the country as a single market, and conducted in-depth analysis in several states. So, when McDonald's opened a restaurant in Gujarat, where most citizens are vegetarian, it offered vegetarian burgers and other Indian dishes, such as samosas. In New Delhi, however, McDonald's introduced meat burgers for non-beef eaters – such as the Maharaja Mac with lamb or chicken.

The company has also made an effort to recruit local managers, for example establishing joint ventureswith two local entrepreneurs in New Delhi who were selected to manage the fast-food restaurant. According to a 2007 article in the Journal of Business Case Studies by Bahaudin Mujtaba and Bina Patel, of Nova Southeastern University, this strategic move helped the company negotiate Indian bureaucracy.

Not all overseas managers need to be local recruits. But Mr Bennett says that when staff are sent overseas they need to become immersed in the local culture. He cites the example of one employee who moved to Shanghai and cycled to work instead of having a driver. “Relocation can be like dropping people from the sky so that they lead from above rather than becoming part of the community you need them to sell to,” he says.

Increasingly, this process is also taking place in reverse, with companies from the growing Bric economies expanding overseas. “It used to be that it was western companies growing in new markets – now it is the likes of Tata, Lenovo and Mahindra that are expanding overseas,” says Mr Nijhoff Asser.

The reasons why many companies expand overseas are changing. He adds that there was a time when “companies went overseas for costs [of production]” or to reach new markets, “but now they are going there to find innovation in the local market”.

Last year, Vijay Govindarajan and Chris Trimble of the Tuck School of Business co-authored an article with Jeffrey Immelt, chief executive of General Electric, in Harvard Business Review on “reverse innovation”, a process whereby goods developed as inexpensive models to meet the needs of emerging markets are repackaged as low-cost products for western consumers.

Prof Kakabadse says this is a reversal of the old strategy of “think global, act local”. Now, it is “think local, then act global”. So, rather than companies customizing products to a local market, the focus should be to start with the local products and then try to leverage them globally.

But not all global companies need to adapt to different cultures. Apple sells the same iPad in Tokyo as in Toronto. Rather than localization, it competes on pace of innovation, says Mr Nijhoff Asser. “HSBC, Ryanair and Apple's top teams have asked themselves what makes their companies better than anyone else. HSBC looked at its 19th-century origins when it was operating in Hong Kong and Shanghai and serviced the local needs,” he says.

But, he adds, Ryanair does not worry about adapting its product to local markets. Its competitiveness lies in price: “Whether you decide to differentiate your market is entirely dependent on your product.” From The Financial Times