Cross-cultural risks in business

Cross-cultural risks in business

By Rob Goodfellow

WOLLONGONG, Australia (JP): A quick round of cappuccinos
recently cost some Australian businessmen the equivalent of A$1
million. The experience demonstrated that Australian
businesspeople still have a lot to learn about dealing with
Australia's major regional trading partners -- Japan, China and
Indonesia.

The situation indirectly arose from a high level Australian
business delegation to the People's Republic of China (PRC). The
host, managing director of the PRC's fifth largest diversified
conglomerate, lavished five-star hospitality on the visitors.

The itinerary included introductions to senior trade, industry
and political figures. This was complemented by a series of
intimate "get to know you" sightseeing excursions with executives
of a newly privatized state-owned enterprise, hungry for
Australian expertise and materials.

A reciprocal visit was organized. What followed was an
unmitigated disaster. The Australian directors picked up the
Chinese delegation at the airport, stopped for "a quick coffee"
and rushed to make the important 9 a.m. meeting.

This was so that they could "get right get down to business".
This proved to be the most expensive round of cappuccinos in
history.

The Chinese delegation were polite. They agreed with
everything. Then they left on the first available flight. On
arriving home the Chinese side immediately exercised their option
to withdraw their A$1,000,000 in venture capital.

In private, the following explanation was conveyed to me. The
managing director, who I will call "Mr. Li", had lost face in
front of his subordinates. He had boasted to them before leaving
China of the good character of the Australians. He was in fact
eagerly anticipating the opportunity to get to know his new
partners and to enjoy some Australian hospitality -- go fishing,
play golf and get his picture taken with a kangaroo.

Not a tall order. So what went wrong?

First, Australian businesspeople generally do not recognize
culture as a risk factor. We are not the same, and yes, it does
matter. Failure to recognize our considerable differences has
lead to the breakdown of many cross-cultural businesses. In the
most part the explanation for not proceeding to the operational
phase is given as "misunderstandings".

Australia, like all Western societies, places an emphasis on
individualism. Our regional trading partners, despite their
considerable diversity, are communal societies where the
appearance of "equality of outcome" is more important than
individual rights.

We are linear in our thinking. We are obsessed with goals,
targets and ends. The nations to our north do not have a liner
view of time but are rather preoccupied with networking,
relationship-building and the way things are done.

The latter and not the former was the real purpose of Mr Li's
visit. While our desire to "do business" may be something we have
in common, there were two problem areas that led to the
breakdown.

The first is that many Australians believe that the way we
think is the way everyone thinks. The second is that we have this
strange notion that "business is business" and cultural
perspectives are unimportant.

Mr Li, would beg to differ. "Form" and "face" were prominent
in his decision to withdraw from the project.

What are they and how can they be managed?

In Asia, form comes before substance. Form is the reflection
of a person's power and reputation. Reputation must be
established before substantive discussions may proceed. For the
Chinese, this is in fact a type of risk management, even risk
insurance, based on the "rule of man", or codes of behavior,
rather than the written "rule of law" (although international
convention is causing rapid convergence in the field of formal
business law in places like the PRC and Indonesia).

The Chinese delegation's visit to Australia was as much about
"codes of hierarchy" as it was about business opportunities. It
was intended to demonstrate that Mr Li was a person worthy of our
reciprocal hospitality.

It had little to do with hospitality per se. Mr Li is a very
wealthy man who could well afford to do anything he liked. The
purpose of his visit was to improve his standing in the eyes of
his own delegation, to fortify his decision to proceed with the
joint venture and to get to know the character of the people he
was planning to do business with.

Against these imperatives "the big 9 a.m. meeting" was of
little consequence. Failure to appreciate this resulted in Mr Li
losing face and ultimately to the disintegration of the entire
project.

"Face" is a concept that is not uniquely held by Chinese
people alone. It has universal applicability. The reason that it
is most often identified as an Asian value, is that it is more
important to the cohesion of a collective society, like China.

There is a two-fold meaning in the concept of "face".

When something affects the relationship between people, one
side wants to protect his or her own personal standing.
Simultaneously he or she will also want to protect the prestige
of others involved in the relationship network.

The consequence of social carelessness is usually "loss of
face". In this case the person feels "shame", a powerful
collective emotion (as opposed to individually minded Westerners
who internalize these feelings as "guilt").

What Mr Li felt was a sense of shame at the careless treatment
he received on his first morning in Australia. It left him with
no alternative but to immediately move to reestablish his
position in the hierarchy by placing his reputation above short-
term material benefit.

Clearly this was not appreciated by the Australians who did
not understand the imperative of making Mr Li look good in front
of his delegation -- before discussions took place.

This was in fact the most important first objective to be
established before proceeding towards a successful commercial
outcome.

This unfortunate situation could have been completely avoided
by the same sort of intelligence gathering and strategic planning
that Australians apply to other dealings.

Cultural differences are real and need to be anticipated and
managed.

This requires the insight that comes with careful preparation.
Grounding should include both nation and regional-specific
knowledge of the decision-makers involved. Likewise, insight into
the relationship building process, a firm grip on protocol and a
well-rehearsed and confident grasp of appropriate, and effective
negotiating strategies, is a premium.

If business is a contest with rules, and Australia's survival
in the region as a prosperous trading nation depends on mastery
of the game, understanding the importance of managing cultural
risk must rise to the top of our list of priorities.

The writer (sujoko@ozemail.com.au) teaches cross-cultural
business studies at Mt. Eliza Business School and at the
University of Wollongong Graduate School of Business. His books
include Investing in Australia: A Cultural and Practical Guide
(Allen and Unwin: 2001).