Cross-cultural risks in business<\/p>\n
By Rob Goodfellow<\/p>\n
WOLLONGONG, Australia (JP): A quick round of cappuccinos
\nrecently cost some Australian businessmen the equivalent of A$1
\nmillion. The experience demonstrated that Australian
\nbusinesspeople still have a lot to learn about dealing with
\nAustralia's major regional trading partners -- Japan, China and
\nIndonesia.<\/p>\n
The situation indirectly arose from a high level Australian
\nbusiness delegation to the People's Republic of China (PRC). The
\nhost, managing director of the PRC's fifth largest diversified
\nconglomerate, lavished five-star hospitality on the visitors.<\/p>\n
The itinerary included introductions to senior trade, industry
\nand political figures. This was complemented by a series of
\nintimate \"get to know you\" sightseeing excursions with executives
\nof a newly privatized state-owned enterprise, hungry for
\nAustralian expertise and materials.<\/p>\n
A reciprocal visit was organized. What followed was an
\nunmitigated disaster. The Australian directors picked up the
\nChinese delegation at the airport, stopped for \"a quick coffee\"
\nand rushed to make the important 9 a.m. meeting.<\/p>\n
This was so that they could \"get right get down to business\".
\nThis proved to be the most expensive round of cappuccinos in
\nhistory.<\/p>\n
The Chinese delegation were polite. They agreed with
\neverything. Then they left on the first available flight. On
\narriving home the Chinese side immediately exercised their option
\nto withdraw their A$1,000,000 in venture capital.<\/p>\n
In private, the following explanation was conveyed to me. The
\nmanaging director, who I will call \"Mr. Li\", had lost face in
\nfront of his subordinates. He had boasted to them before leaving
\nChina of the good character of the Australians. He was in fact
\neagerly anticipating the opportunity to get to know his new
\npartners and to enjoy some Australian hospitality -- go fishing,
\nplay golf and get his picture taken with a kangaroo.<\/p>\n
Not a tall order. So what went wrong?<\/p>\n
First, Australian businesspeople generally do not recognize
\nculture as a risk factor. We are not the same, and yes, it does
\nmatter. Failure to recognize our considerable differences has
\nlead to the breakdown of many cross-cultural businesses. In the
\nmost part the explanation for not proceeding to the operational
\nphase is given as \"misunderstandings\".<\/p>\n
Australia, like all Western societies, places an emphasis on
\nindividualism. Our regional trading partners, despite their
\nconsiderable diversity, are communal societies where the
\nappearance of \"equality of outcome\" is more important than
\nindividual rights.<\/p>\n
We are linear in our thinking. We are obsessed with goals,
\ntargets and ends. The nations to our north do not have a liner
\nview of time but are rather preoccupied with networking,
\nrelationship-building and the way things are done.<\/p>\n
The latter and not the former was the real purpose of Mr Li's
\nvisit. While our desire to \"do business\" may be something we have
\nin common, there were two problem areas that led to the
\nbreakdown.<\/p>\n
The first is that many Australians believe that the way we
\nthink is the way everyone thinks. The second is that we have this
\nstrange notion that \"business is business\" and cultural
\nperspectives are unimportant.<\/p>\n
Mr Li, would beg to differ. \"Form\" and \"face\" were prominent
\nin his decision to withdraw from the project.<\/p>\n
What are they and how can they be managed?<\/p>\n
In Asia, form comes before substance. Form is the reflection
\nof a person's power and reputation. Reputation must be
\nestablished before substantive discussions may proceed. For the
\nChinese, this is in fact a type of risk management, even risk
\ninsurance, based on the \"rule of man\", or codes of behavior,
\nrather than the written \"rule of law\" (although international
\nconvention is causing rapid convergence in the field of formal
\nbusiness law in places like the PRC and Indonesia).<\/p>\n
The Chinese delegation's visit to Australia was as much about
\n\"codes of hierarchy\" as it was about business opportunities. It
\nwas intended to demonstrate that Mr Li was a person worthy of our
\nreciprocal hospitality.<\/p>\n
It had little to do with hospitality per se. Mr Li is a very
\nwealthy man who could well afford to do anything he liked. The
\npurpose of his visit was to improve his standing in the eyes of
\nhis own delegation, to fortify his decision to proceed with the
\njoint venture and to get to know the character of the people he
\nwas planning to do business with.<\/p>\n
Against these imperatives \"the big 9 a.m. meeting\" was of
\nlittle consequence. Failure to appreciate this resulted in Mr Li
\nlosing face and ultimately to the disintegration of the entire
\nproject.<\/p>\n
\"Face\" is a concept that is not uniquely held by Chinese
\npeople alone. It has universal applicability. The reason that it
\nis most often identified as an Asian value, is that it is more
\nimportant to the cohesion of a collective society, like China.<\/p>\n
There is a two-fold meaning in the concept of \"face\".<\/p>\n
When something affects the relationship between people, one
\nside wants to protect his or her own personal standing.
\nSimultaneously he or she will also want to protect the prestige
\nof others involved in the relationship network.<\/p>\n
The consequence of social carelessness is usually \"loss of
\nface\". In this case the person feels \"shame\", a powerful
\ncollective emotion (as opposed to individually minded Westerners
\nwho internalize these feelings as \"guilt\").<\/p>\n
What Mr Li felt was a sense of shame at the careless treatment
\nhe received on his first morning in Australia. It left him with
\nno alternative but to immediately move to reestablish his
\nposition in the hierarchy by placing his reputation above short-
\nterm material benefit.<\/p>\n
Clearly this was not appreciated by the Australians who did
\nnot understand the imperative of making Mr Li look good in front
\nof his delegation -- before discussions took place.<\/p>\n
This was in fact the most important first objective to be
\nestablished before proceeding towards a successful commercial
\noutcome.<\/p>\n
This unfortunate situation could have been completely avoided
\nby the same sort of intelligence gathering and strategic planning
\nthat Australians apply to other dealings.<\/p>\n
Cultural differences are real and need to be anticipated and
\nmanaged.<\/p>\n
This requires the insight that comes with careful preparation.
\nGrounding should include both nation and regional-specific
\nknowledge of the decision-makers involved. Likewise, insight into
\nthe relationship building process, a firm grip on protocol and a
\nwell-rehearsed and confident grasp of appropriate, and effective
\nnegotiating strategies, is a premium.<\/p>\n
If business is a contest with rules, and Australia's survival
\nin the region as a prosperous trading nation depends on mastery
\nof the game, understanding the importance of managing cultural
\nrisk must rise to the top of our list of priorities.<\/p>\n
The writer (sujoko@ozemail.com.au) teaches cross-cultural
\nbusiness studies at Mt. Eliza Business School and at the
\nUniversity of Wollongong Graduate School of Business. His books
\ninclude Investing in Australia: A Cultural and Practical Guide
\n(Allen and Unwin: 2001).<\/p>",
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