Competing across borders


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Competing across borders. How cultural and communication barriers affect business. Interesting report. Unfortunately no chapter about e-commerce/internet and these barriers. Think about different social networks and usage of it, different way of advertising and usage of the internet, local content etc.

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Competing across borders

  1. 1. Competingacross bordersHow cultural and communicationbarriers affect businessA report from the Economist Intelligence Unit Sponsored by
  2. 2. Competing Across Borders: How Cultural And Communication Barriers Affect Business Contents About this report 2 Executive summary 3 1. The challenge and the prize 5 Measuring cultural differences 11 2. The corporate scorecard 12 Scania: When opposites attract 13 Emerging-market MNCs: From local to global 17 Conclusion 18 Appendix 19 © The Economist Intelligence Unit Limited 2012 1
  3. 3. Competing Across Borders: How Cultural And Communication Barriers Affect Business About this reportC ompeting across borders: how cultural and communication barriers affect business is an Economist Intelligence Unitreport, sponsored by EF Education First. It explores the l A series of in-depth interviews with independent experts and senior executives from a number of major companies listed below.challenges companies face when they have to operate or l Nancy Adler, professor in management, McGillcompete in increasingly international markets. Specifically, University, Canadathis paper assesses the role that cross-border communicationand collaboration play in the success or failure of companies l Richard Gartside, human resources director, Balfourwith ambitions that are not hostage to national borders. Beatty, United Kingdom l Albert Gilmutdinov, minister of education and science,The Economist Intelligence Unit bears sole responsibility for Tatarstan, Russiathe content of this report. The findings do not necessarilyreflect those of the sponsor. l Nandita Gurjar, global head of human resources, Infosys, IndiaThe paper draws on two main sources for its research and l Lan Kang, general manager of human resources, Fosunfindings: Group, Chinal A global survey of 572 executives, conducted in February l Flavio Liviero, chief project co-ordinator, Scania, Braziland March 2012. Approximately one-half of respondents(47%) were C-level or board level executives, and over one-half l Charlene Solomon, executive vice- president, RW³,(53%) were from companies with annual revenue in excess of United StatesUS$500m. All respondents represented companies with either l Patricia Taparelli, group human resources manager,an international presence or plans for international expansion. ABB, SwitzerlandJust over one-half (51%) of the respondents’ companies areheadquartered in western Europe; almost one-fifth (17%) are We would like to thank all interviewees and survey respondentsheadquartered in Asia Pacific; nearly one in ten (9%) have for their time and insight.headquarters in North America, and 8% are based in LatinAmerica. The rest of the companies represented in the survey The report was written by David Bolchover and edited by Abhikare from Africa, eastern Europe and the Middle East. Sen and Sara Mosavi.2 © The Economist Intelligence Unit Limited 2012
  4. 4. Competing Across Borders: How Cultural And Communication Barriers Affect Business Executive summaryW ith their home markets in the throes of a prolonged stagnation, if not downturn,companies based in developed economies are adopt measures that will turn this realisation into practice.turning more and more towards the developing Some of the key findings of the report are asworld in the search for new customers and the follows:hunt for new talent. Meanwhile, companiesfrom vibrant developing economies whose l Contrary to the expectations of manyambitions have outgrown their own homelands experts, the current economic downturn isare also seeking opportunities to grow through spurring companies into becoming moreinternational expansion. These dynamics have internationalcombined to create a world of business thatis thoroughly international, and in which it is While previous recessions have often resultedcommonplace for workers and businesses to in businesses reducing their risk exposurecommunicate and collaborate with customers, with a renewed focus on their core markets, ancolleagues, suppliers and partners in other overwhelming majority of respondents in thecountries. survey conducted for this report confirm that their companies are becoming more global inThe resulting need for harmonious and their outlook and ambitions.productive cross-border relationships thattranscend cultural differences has placed new Several indicators corroborate this widespreaddemands on companies and their workforces. internationalisation of business. Almost nineThe survey findings reveal a corporate world that in ten respondents to the survey on which thishas at least recognised a new reality in which report is based think their company’s number ofthe right products and services must also now be overseas clients will increase in the next threeallied with the necessary cultural sensitivity and years, while 77% believe that their company willcommunication skills in order for companies to have an operational presence in more countriessucceed in markets away from home. However, than it does now. As a consequence, companiesthe views expressed in the survey by senior are moving away from traditional organisationalbusiness executives from all corners of the world structures, with 78% saying that in the nextalso indicate that many organisations have yet to three years they will establish more cross-border © The Economist Intelligence Unit Limited 2012 3
  5. 5. Competing Across Borders: How Cultural And Communication Barriers Affect Businessteams, comprising people who are physically located in of organizational behavior. “There is the false assumptiondifferent countries. that just because we can reach anyone in the world so easily through email or Skype, we are, therefore, all the same.”l Effective cross-border communication and collaborationare becoming critical to the financial success of companies l Organisations with international ambitions increasinglywith international aspirations expect prospective employees to be fluent in key foreign languagesPresumably as a result of their companies’ focus oninternational growth, almost two-thirds of respondents think The survey conducted for this report reveals the multilingualthat “better cross-border collaboration has been a critical nature of the modern business world. According to almostfactor in the improvement of our organisation’s performance one-half of the companies surveyed, at least one in five ofin the past three years”. However, a similar proportion feel their workers need to speak another language in their job, andthat their organisation encounters difficulties with cross- one-quarter say that a majority of their workforce require someborder collaboration or communication at least “sometimes”. foreign language skills.This can be costly. Around one-half of the executives surveyedfor the purpose of this report admitted that ineffective Not surprisingly, a majority of executives surveyed believecommunication or inadequate collaboration had obstructed that their workforce will need to know English if the companymajor international transactions, inevitably resulting in is to succeed in its international expansion plans. Mandarinfinancial loss. is considered the second-most important foreign language, but just 8% say their workers will need to be fluent in it. TheThe overwhelming majority (bordering on 90%) believe importance of language skills in a globalised world is reflectedthat if cross-border communication were to improve at their in companies’ hiring strategies. Very few companies nevercompany, then profit, revenue and market share would all consider multilingual skills to be essential in job seekers, butimprove as well. This is partly because potential opportunities many now expect them to be fluent in at least one non-nativein foreign countries are currently being spurned, with almost language.two-thirds of respondents saying that differences in language l Misunderstandings rooted in cultural differencesand culture make it difficult to gain a foothold in unfamiliar present the greatest obstacle to productive cross-bordermarkets. collaborationl Most companies understand the cost of not improving thecross-border communication skills of their employees, yet Respondents regard “differences in cultural traditions” (51%)many are not doing enough to address the challenge and “different workplace norms” (49%) as the greatest threats to the smooth functioning of cross-border relationships.Despite acknowledging the direct impact of effective cross- Nandita Gurjar, global head of human resources at Infosys,border communication on their fortunes, a significant one of the world’s largest information technology servicesproportion of companies, by their own admission, are not companies based in India, agrees that cultural awareness andtaking sufficient remedial action to address the root causes cross-border ambitions go hand in hand: “We are a globalof misunderstandings. Some 47% say their companies do not company. We simply cannot progress without the knowhow andoffer enough training to hone their employees’ language and experience to deal with other cultures.”communication skills, and 40% believe there is not enoughemphasis placed on recruiting or selecting people who are Linguistic diversity – or the lack of it – is considered by somesuited to cross-cultural environments. margin to be a greater business challenge in Latin America and southern Europe than elsewhere. For example, 38% of thoseSome organisations appear to be underestimating the surveyed in Brazil and 40% in Spain believe the difficulty inextent of the challenge. “Interconnectedness through communicating in non-native languages to be a significantmodern technology has deluded many people,” according hindrance to effective cross-border Nancy J. Adler, chair in management at McGill Universityin Montreal, Canada, and author of International dimensions4 © The Economist Intelligence Unit Limited 2012
  6. 6. Competing Across Borders: How Cultural And Communication Barriers Affect Business 1 The challenge and the prizeS ince the turn of the century, thanks to the dynamism of many developing economies and the advances intechnology and telecommunications, the world is getting 2020 for many of the world’s high-growth markets.2 These economies are also on the cusp of superseding developed economies as the largest recipients of the world’s imports3 (seeever smaller, and national boundaries matter less and less charts 1 and 2).in business. In fact, in 2010 the high-growth markets ofLatin America, Asia, eastern Europe, the Middle East and But as companies seek to expand in new and unfamiliarAfrica together accounted for 45% of world gross domestic markets, their ability to form close relationships withproduct, up from just 25% in 1980.1 Gross domestic product commercial partners and customers is often hampered byin purchasing power parity terms, according to Economist obstacles arising from cultural differences. It is thereforeIntelligence Unit estimates, is likely to more than double by perhaps unsurprising that, when contemplating international Chart 1 Trading places (Share of world imports; %) Developed economies Emerging economies 80.0 80.0 70.0 70.0 60.0 60.0 50.0 50.0 1 Asian Development Bank, based on World Bank world 40.0 40.0 development indicators and IMF databases. 30.0 30.0 2 Economist Intelligence Unit, CountryData. 20.0 20.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 3 World Trade Organisation; Sources: World Trade Organisation; The Economist, The World in 2012. The Economist. © The Economist Intelligence Unit Limited 2012 5
  7. 7. Competing Across Borders: How Cultural And Communication Barriers Affect Business Chart 2 Nominal GDP (Gross domestic product at purchasing power parity; US$) 2010 2020 30,000 30,000 25,000 25,000 20,000 20,000 15,000 15,000 10,000 10,000 5,000 5,000 0 0 Brazil China France Germany India Japan South Mexico Russia UK US Korea Source: Economist Intelligence Unit. expansion, many prefer to gain a foothold first of his native Bialystok, Zamenhof believed that in those countries with which they may be more a common language would “break the walls compatible culturally. between the peoples”. In his influential book The Language Instinct, While Esperanto never quite captured the world’s the Harvard University psychologist and linguist imagination, Zamenhof’s emphasis on creating Steven Pinker observes: “What is truly arresting a communication tool that unites rather than about our kind is better captured in the story of divides people is valid more than ever in today’s the Tower of Babel, in which humanity, speaking dynamic world economy. Pankaj Ghemawat, a single language, came so close to reaching professor of global strategy at the IESE business heaven that God himself felt threatened. A school in Spain, has calculated that two countries common language connects the members of a which share a common language trade 42% more community into an information-sharing network than two otherwise similar countries which do with formidable collective powers.” not have that linguistic connection. Meanwhile, countries once bound by colonial ties trade Mr Pinker’s assertion is, in part, what Lazar 188% more, by some margin even outweighing Zamenhof, a philologist born in what is now the impact of membership of a common currency Poland, was trying to achieve in the late 19th (which increases trade by only 114%).4 For century, when he first introduced Esperanto example, 68% of the foreign direct investment to the world – a constructed language whose that entered China in 2009 originated from purpose, Zamenhof hoped, would be to minimise countries where the Chinese form the largest mutual misunderstandings created by the lack of ethnic group (ie, Hong Kong, Singapore). The a common language between people of different UK and its former colonies enjoy similarly strong ethnic and linguistic backgrounds. Frustrated business ties: trade between them, Professor by the many divisions and quarrels among the Ghemawat found, gets a13% uplift because of diverse communities that made up the population their shared cultural heritage.6 © The Economist Intelligence Unit Limited 2012
  8. 8. Competing Across Borders: How Cultural And Communication Barriers Affect Business Chart 3 Overall, how important would you say cross-border collaboration is in the following environments? (% respondents) Very important Somewhat important Not important at all 59% 38% 56% 38% 52% 43% 5% 4% 3% Within your organisation Within your business With external partners, generally unit or division suppliers or outsourcers in other countriesHowever, the sheer extent of competitive administrative barriers to the private sector;pressure and pace of cross-border expansion and we’ve established scientific and educationalinevitably means that many more companies are institutions to make sure our workforce is readynow launching operations in countries with no for any project.”such common heritage or language. More thanthree in four of the companies surveyed for the When words add up to numberspurpose of this report confirm that they will have The impact of good cross-border collaboration onan operational presence in more countries in a company’s financial performance is now widelythree years from now than they do currently. One recognised. Nearly two-thirds (64%) of surveyin six predict that the scope of their international respondents believe that better cross-borderpresence will increase “significantly”, even in this collaboration was a “critical factor” in recentrelatively short time. improved performance (see chart 5), perhaps in large part because it can provide the requiredConsequently, many companies appreciate the intelligence about the intricacies of doingneed to bridge any national divides. More than business in countries that might pose complexone-half think that cross-border collaboration is cultural barriers to “very important”, both within the companyin cross-border teams, and in relationships with About two in five respondents (39%) to theexternal partners and suppliers (see chart 3). survey carried out for this report believe that strategy and business operations stand toBut the globalisation of the business benefit the most from an improvement in theirenvironment is not just about companies. It is company’s cross-border communications. Justalso about countries and their governments over a majority (55%) believe that relationshipscreating the right environment to attract with clients in overseas markets will be positivelyinvestment from foreign companies. Albert affected by such improvements, followed by salesGilmutdinov, minister of education and in overseas markets (43%). Remarkably, for 44%science in the Russian Republic of Tatarstan, of respondents from China – compared to justexplains his own government’s policy to make 17% of all respondents - better communicationTatarstan an international business hub: skills are seen as key to improving their 4 The Economist, “The Power“We’ve formed a dense and rich infrastructure relationships with regulators in overseas of Tribes”, January stimulate investment; we’ve minimised © The Economist Intelligence Unit Limited 2012 7
  9. 9. Competing Across Borders: How Cultural And Communication Barriers Affect Business Chart 4 To what extent can better cross-border communications improve the following at your company? (% respondents) Improve significantly Improve somewhat Not at all Profit Revenue Market share 33% 35% 35% 55% 54% 51% 8% 7% 8% markets. Chinese respondents are probably quite communication skills of their employees can have right to be concerned, considering the increasing an equally critical impact on an international scrutiny that Chinese companies are coming company’s bottom line. under as they expand into new markets. Richard Gartside, human resources director at An overwhelming majority of executives surveyed Balfour Beatty Group, one of the world’s largest also believe that an improvement in cross-border infrastructure companies based in the UK, says communications with customers and colleagues that, in some cases, his company’s first step in a will have a beneficial impact on financial foreign venture is normally to build a relationship indicators, such as profit, revenue and market with a local joint-venture partner. “Without share (see chart 4). While most companies focus, good local knowledge and cultural awareness quite sensibly, on getting their strategy right from such a partnership, it becomes much more on products, costs, sales and the other building difficult to break into a new market,” he says. To blocks of business, the research done for this capture that knowledge within the organisation report suggests that the inter-personal and and to broaden employees’ experience, Balfour Chart 5 Please state the extent to which you agree or disagree with the following statements: (% respondents) Strongly agree/agree Neutral Disagree/strongly disagree 64% 67% 51% 29% 27% 28% 20% 7% 3% Better cross-border collaboration The multicultural nature of Cultural and linguistic diversity has been a critical factor in the cross-border teams breeds can make it difficult to collaborate improvement of our organisations innovation internally across borders and with our performance in the past three years external partners8 © The Economist Intelligence Unit Limited 2012
  10. 10. Competing Across Borders: How Cultural And Communication Barriers Affect BusinessBeatty looks to move people with leadership according to 74% and 61% of respondentspotential to other countries to learn more about from these two countries, respectively, theirthe business, different working arrangements companies have suffered financial losses as aand cultures, and communication etiquette. result of failed cross-border transactions.Meanwhile, a similarly high percentage of It is not just financial performance that’s atsurvey respondents - 67% - reckons that the stake either. Over three-fifths of companiesmulticultural nature of cross-border teams within surveyed think a lack of clarity in their internalthe company increases innovation (see chart 5). cross-border communication often results in lost productivity. The number rises to 77% whenProfessor Adler from McGill University agrees that looking at just the Brazilian respondents, whilemulticultural teams have the potential to be more 43% of UK executives think that better cross-creative and offers three reasons why this is the border communications can improve “First, diverse teams naturally possess abroader knowledge of current world trends, and Clearly, if diversity is not handled correctly,thus their decisions are founded on a stronger then cultural differences can jeopardise thegrasp of all relevant issues. Second, they are end objective (see box on page 11). Althoughless likely to suffer from the ‘group-think’—or business executives recognise the potentialpressure to conform—which often afflicts teams benefits that diversity brings to an organisation,made up of similar people. Third, culturally they also report that cultural and linguisticdiverse people tend to approach problems from diversity can make it difficult to collaboratedifferent perspectives and therefore frequently across borders.produce a wider range of solutions, making itmore likely that one of those solutions will be The survey confirms that different culturalexcellent.” traditions, combined with linguistic diversity, present the greatest threat to the harmony ofOne could also argue that cross-border teams cross-border relationships (see chart 7).have the potential to be more productive, simplybecause they don’t work in the same place. “Witha co-located team you can spend much of the daychatting, drinking coffee, making jokes,” says Chart 6Patricia Taparelli, group HR manager at ABB, a To the best of your knowledge, have communicationmultinational engineering company based in misunderstandings or problems ever stood in the way of aSwitzerland. “But when you are in a virtual team, major cross-border transaction (eg sale, contract with aall you have to do is get on with your work.” supplier, merger, acquisition, foreign direct investment etc)? (% respondents)Mind the communication gap Yes, it has happened severalWhen important cross-border relationships do times and we have suffered 6%break down, the cost to a business in financial, financially as a resultoperational or reputational terms can hurt. Yes, it has happened a few timesAround one-half of respondents in the survey and we have incurred some 43% financial setbacks as a resultfor this report admit that communication No, it has never happenedmisunderstandings have stood in the way of to my knowledge 38%a major cross-border transaction, incurringsignificant losses for their company (see chart 6). Don’t know/Brazilian and Chinese companies appear to fare Not applicable 13%considerably worse than their peers elsewhere: © The Economist Intelligence Unit Limited 2012 9
  11. 11. Competing Across Borders: How Cultural And Communication Barriers Affect Business Chart 7 Of the following, which are most likely to cause the greatest misunderstanding in cross-border communication for your organisation? Please select up to two options (% respondents) 51% 49% 27% 23% Differences in cultural traditions Different norms of workplace Diversity of Poor quality in different countries behaviour languages across of translations countries Percentages do not add up to 100% as respondents could select more than one option. The 1998 merger of two car manufacturers, This cultural and communication risk that Germany’s Daimler-Benz AG and the American businesses face when they try to expand into Chrysler Corporation, provides a stark example unfamiliar territory is now commonplace. The of the destructive impact of such discord. The survey indicates that just over three-fifths different DNAs of the two organisations and a of companies (61%) admit to encountering series of operational mis-steps, compounded by difficulties at least “sometimes” when cultural and linguistic incompatibility, created communicating across borders (see chart 8). This irreconcilable tensions which eventually resulted figure is much higher in some parts of the world: in the two companies parting ways. nearly four-fifths of respondents from Brazil (79%) and 71% from Spain report encountering such obstacles. Chart 8 When communicating with business stakeholders (partners, “Diversity has the potential to produce much customers or co-workers) across borders, how often would better results, but this of course assumes that the you say that you or your organisation encounters difficulties? cross-border relationships will survive the initial (% respondents) cultural misunderstandings,” says Charlene Solomon, executive vice-president at RW3, a New York-based online cultural training company. 8% 61% 27% 2% “With cross-cultural teams, the extremes become more possible – both excellent performance and very weak performance.” Very often Sometimes Rarely Never10 © The Economist Intelligence Unit Limited 2012
  12. 12. Competing Across Borders: How Cultural And Communication Barriers Affect BusinessMeasuring cultural differencesCultural differences can be seen in a broad range are likely to show much more deference to theirof beliefs and behaviours found on a daily basis manager than their counterparts in countriesin the workplace. Several management thinkers, such as Denmark, Israel and Austria, wheresuch as Geert Hofstede, Fons Trompenaars and subordinates tend to want to be frequentlyEdward T. Hall, have formulated frameworks consulted by those above them in the hierarchy.which attempt to measure how each nationalculture fits into this complex spectrum. Unsurprisingly, given the importance of the “American dream” within its culture, theSuch frameworks can help international United States scores highly for individualism,managers to anticipate and then solve possible whereas several countries in Central and Latinconflict caused by misunderstandings between America (Ecuador, Panama, Venezuela) and Asiavarious cultures. Nandita Gurjar, global head (Pakistan, Indonesia, South Korea) are at theof human resources at Infosys, a global IT “collectivist” end of the company based in India, believes thatcultural awareness is key. “Most managers, The United States would also be what Edwardwhen confronted with cultural conflict, often T. Hall refers to as a “low-context” culture, inhave little idea that the underlying issue could which people communicate very much throughbe cultural. They tend to think: ‘Why are you a direct, and often terse, exchange of wordsso upset? This is the way I normally behave that carry a literal meaning. Communication inand people in my home office never get upset. “high-context” countries, on the other hand,What’s wrong with you?’ A manager has to get will be much more subtle, with the attentivethe best out of people, and therefore needs to listener required to pay greater attention toknow that an individual’s cultural background gestures, tones and the overall context of thewill strongly influence the way they respond.” conversation.Geert Hofstede’s framework, the most widely Lan Kang, general manager of human resourcesknown, hones in on key cultural differences at Fosun Group, a conglomerate headquarteredsuch as the various attitudes towards hierarchy in Shanghai, explains how the “high-context”or uncertainty, or the extent to which a society Chinese approach to communication canor community values individual achievement clash with more abrupt styles. “Americanson the one hand, or long-term loyalty to a are very explicit and quick to get to the point.collective group on the other. The Chinese are accustomed to using vaguer language in the initial stages. Details areScores on the various dimensions of the then gradually established during furtherframework vary hugely. For example, workers in discussions, as the relationship between the twoAsia, Africa, Latin America and the Arab world sides grows stronger.” © The Economist Intelligence Unit Limited 2012 11
  13. 13. Competing Across Borders: How Cultural And Communication Barriers Affect Business 2 The corporate scorecard G iven the widespread perception that cultural and linguistic differences, in particular, can curtail a company’s international ambitions, respondents to the survey conducted for this report believe that more needs to be done to recruit and select people who are suited to cross-cultural many companies appear not to be doing enough environments (see chart 9 ), and an even greater to mitigate risks. For example, two in five percentage (47%) regret the lack of investment in Chart 9 In improving cross-border communications, how would you describe your company’s investment in the following? (% respondents) Management time Training to improve Conflict resolution of Recruitment and selection spent on assessing employees language disputes arising from cross- of individuals who are impact of cross-border and communication skills cultural misunderstandings suited to cross-cultural communication issues environments 6% More than enough 8% 7% More than enough 10% More than enough 60% More than enough Adequate 45% 51% Adequate 50% Adequate Adequate 41% Not enough 30% 35% Not enough 28% Not enough Not enough 12% Negligible 6% Negligible 6% Negligible 5% Negligible12 © The Economist Intelligence Unit Limited 2012
  14. 14. Competing Across Borders: How Cultural And Communication Barriers Affect Business“language and communication training”. much more strongly felt outside the C-suiteIn light of the fact that in the same survey than within it. This may be a particularly tellingmost executives admit to a strong correlation finding, as it comes from frontline managers whobetween cross-border communication and the perhaps experience the effects of shortcomingsfinancial performance of their organisation, it in corporate strategy on a regular remarkable that such a large percentage of According to the survey done for this report,companies appear to be taking an avoidable 40% of executives outside the top tier believerisk with such a key determinant of their that insufficient management time is beingcompetitiveness. spent on assessing the impact of cross-border communication issues, whereas only 27% ofThe view that companies’ response to cultural their C-suite counterparts agree. It could wellfactors in business has been inadequate is be the case, the survey suggests, that top Scania: When opposites attract According to the cultural framework of the should be for all team members in one place for management thinker Geert Hofstede, Brazil a week. In that time, we can discuss how the and Sweden are poles apart in their workplace project will work and its goals, but also have behaviour. For example, on his “masculinity some social interaction.” versus femininity” dimension, which examines the degree to which a society values “masculine” By the time the meeting participants then go values such as competitiveness and the home to their respective offices, says Mr Liviero, acquisition of wealth over “feminine” concepts the wheels of communication have already such as relationship building and quality of been successfully oiled: “If people hadn’t met, life, Brazil scores 49 (a mid-range figure), but they may be a little reticent about calling each Sweden registers just 5, to make it the most other. Perhaps the conversation doesn’t flow “feminine” society in the world. that easily. But if they’ve already spent some time in each other’s company, that interaction The experience of Scania, the Swedish truck becomes much more natural. Issues are raised manufacturer which delivers more vehicles to and problems solved more quickly.” Brazil than any other country, can thus help us to understand how co-workers from seemingly Gradually, as the relationship strengthens over very different cultures can collaborate time, the awareness of each other’s working productively. culture is heightened. “In Brazil we are more emotional, we tend to hurry everything up Flavio Liviero, the chief project co-ordinator when we need a decision made,” says Mr Liviero. at Scania, has been working for the company “But we have realised that we need a more for 25 years and believes that technology has measured, logical approach when dealing with played a huge role in improving the performance headquarters in Sweden. To win support for our of cross-border teams over that time. “We idea, we must produce carefully thought-out didn’t even have fax machines at the start. At reports or powerpoint slides.” least now we have all the necessary tools for communication in place.” The good news is that this cross-cultural know- how does not have to be built from scratch Nevertheless, Mr Liviero insists that cultural every time a new project team is formed. “An barriers are always present and need to be international team manager can now tap into constantly managed. He believes that the most a substantial pool of knowledge within our effective way to overcome such obstacles is to organisation. This best practice gets passed meet in person at the project’s outset: “What around from person to person over the years,” we noted quite early on was that face-to-face says Mr Liviero. contact really helps interaction. The meeting © The Economist Intelligence Unit Limited 2012 13
  15. 15. Competing Across Borders: How Cultural And Communication Barriers Affect Business management at some companies are either being Polyglots, or at least bilinguists, complacent or overconfident about the risk posed wanted by the quality of their workforce’s cross-border A significant proportion of the global workforce relationships. now appears to spend a good deal of time speaking in a foreign language while doing their People further down the hierarchy may want job, with one-quarter of all companies saying top managers to allocate more of their time to that at least half their employees regularly need intervening as trouble-shooters when a project to do so (see chart 10). founders on cross-cultural tensions. Almost one-half of respondents outside the C-suite Recruitment policies have been shaped express concern about the lack of investment in accordingly. Even when recruiting for jobs in their the resolution of conflict arising from cultural home market, almost one-half of all companies disputes. say that prospective candidates need to be fluent in a foreign language (see chart 11), and a The survey also reveals some significant further 13% say that multilingual ability is a key regional variation in views about the quality of selection criterion. organisational efforts to improve cross-border collaboration. For example, around three in five Regions in which recruitment of multilingual respondents from Brazil and France think their candidates is particularly high can be divided companies do not focus sufficiently on recruiting into two. In the case of the Nordic region, the right people, compared with only 37% among the widespread language proficiency of the rest. employees has resulted in smooth cross-border collaboration. Nearly two-thirds (64%) of survey Indeed, Brazilian executives seem particularly respondents in this region expect candidates in concerned about cultural tensions and their their home countries to be fluent in at least one impact on cross-border collaboration and trade non-native language. As a result, only 36% in this (see box on page 13). Almost two-thirds say region believe that their international expansion that “differences in cultural traditions” hinder is hampered by different languages and customs cross-border relationships (as opposed to (compared with 64% of all respondents). one-half of non-Brazilians). As a result, 29% of survey respondents in Brazil say that cultural As revealed by the survey, companies differences greatly hamper their plans for headquartered in the Nordic region are by far international expansion, whereas just 12% of the most confident in their ability to negotiate other respondents think likewise. their way through cultural and communication Chart 10 What proportion of your company’s workforce requires some level of international/ non-native language skills in order to effectively carry out their job? (% respondents) 25% 21% 20% 20% 14% Over 50% Between 20% Between 10% Up to 10% Less than 1% and 50% and 20%14 © The Economist Intelligence Unit Limited 2012
  16. 16. Competing Across Borders: How Cultural And Communication Barriers Affect Business Chart 11 When hiring in general, how much importance is given to a candidate’s ability to communicate with people from other cultures? (% respondents) Recruiting in home country Recruiting overseas We expect candidates to be fluent in at least one 39% 43% non-native language Being multilingual is a key selection criteria in our 13% 19% hiring process We expect candidates to be fluent in two or more non- 9% 17% native languages We do not consider multilingual skills in 13% 7% our hiring process We only consider multilingual skills important for certain roles 26% 14%barriers in international business (see chart candidates in their home market to be fluent in at12). Their confidence is rooted in the education least one non-native language, perhaps becauseand training systems in their countries, which an overwhelming proportion (89%) is of theencourage the learning of different languages. opinion that the challenge of different languagesOther governments are now taking a leaf out and customs is stifling their international plans.of their book. “I am convinced that the vastmajority of economic and social problems Talking businessshould be solved jointly by government and English is the one language which companiesbusiness,” says Mr Gilmutdinov, Tatarstan’s expect their workforce to know in order toeducation minister. “For example, Tatarstan has succeed on an international scale. More thanrecently implemented a number of educational two-thirds of executives who participated in theprogrammes and modules aimed at foreign- survey on which this report is based considerlanguage training for public servants. This is English to be essential, followed by Mandarinnot only to improve their skills set, but also (8%) and Spanish (6%) as the next most popularto improve the quality of service that foreign languages.businesspeople receive in our country.” Interestingly, the gap between current usageThat said, the relatively widespread hiring and the desired level of proficiency in Englishof bilingual or multilingual workers in Spain is greatest in China, showing the country’sis not a cause of high-quality cross-cultural increasingly external-facing business outlook.collaboration, but rather, it appears to be a Only 9% of Chinese respondents say that at leastresponse to perceived problems in this area. 50% their workers now use a foreign languageNearly one-half (49%) of respondents expect in their job, but 86% also expect that 50% of © The Economist Intelligence Unit Limited 2012 15
  17. 17. Competing Across Borders: How Cultural And Communication Barriers Affect Business Chart 12 How do cultural factors or differences such as language and local customs affect your companys plans for international expansion? Hampers a lot/somewhat Does not affect at all Helps our plans for international expansion Nordics Russia 8% 3% UK 27% 36% 10% 37% 89% 28% 62% US 18% France 27% 55% 14% 23% 63% Italy Spain 17% China 9% 3% 20% 63% 21% 12% 67% 88% Brazil 15% 15% 70% their workers their employees will need to know Ms Solomon from the RW3 consultancy suggests English if their companies are to make a success ways in which virtual group meetings can be of their international plans (see box on page 17). made more worthwhile for everyone, whatever their level of fluency: “The conference leader As more and more workers at international has to create an environment in which language companies add foreign-language skills to their differences are accepted. State clearly that résumé, those without any could perhaps be participants should ask for something to forgiven for thinking that communication be repeated and clarified if they don’t fully barriers are disappearing. But just because, say, understand. You should always send an agenda a German worker has learnt Chinese at language beforehand so people who are not as comfortable school does not mean that he or she will not in the language can prepare. Afterwards, always get baffled by slang, jargon or colloquialism, or send minutes or a summary of what’s been said. even by someone speaking Chinese very fast, You should not rush the call, but always give particularly when the interaction is virtual, for people time to form their thoughts and give their example, during a video conference or telephone opinions in what is for them a foreign language.” call.16 © The Economist Intelligence Unit Limited 2012
  18. 18. Competing Across Borders: How Cultural And Communication Barriers Affect BusinessEmerging-market MNCs: From local to globalMuch has been written about how companies based in induction period. “All North American and Europeandeveloped countries are coping with the cultural obstacles graduates joining the company from university come for sixthey encounter while doing business in the developing world. weeks to our headquarters in Bangalore to obtain an insightBut how are the rapidly growing companies from emerging into how our people operate, and also to get to know someeconomies faring with the similar challenges posed by of the people they will be working with,” says Ms Gurjar. “Forexpansion into unfamiliar markets? senior levels, the induction programme lasts two weeks and involves much discussion and training on working with peopleNancy Adler of McGill University in Canada thinks that they from different geographies.”have a natural advantage over their Western counterparts,particularly the United States: “Historically, the US has had a In China, meanwhile, language differences pose more ofhuge domestic economy, so many US companies have not felt a threat to the fulfilment of international strategy. Fosun,compelled to gain the understanding of other cultures that a Chinese conglomerate listed on the Hong Kong stockis now necessary to conduct business in the 21st century’s exchange, has invested in a broad range of business venturesglobal economy, or even to establish successful business throughout the world, and therefore fluency in English is aventures abroad. Also, because so much of world business requirement for its investment conducted in English, many native English speakers,including many Americans, tend to assume that non-native “This obviously narrows down the candidate pool, and weEnglish speakers from other parts of the world want to be like have to pay a little more to recruit people with languagethem. A business person from Thailand or Slovenia knows that skills, but we don’t experience a real bottleneck,” says Lanthe world is not trying to be like them. By becoming multi- Kang, general manager of human resources at Fosun. “Therelingual, they already know that they must recognise cultural are many Chinese returnees who’ve spent long periodsdifferences in order to leverage them to their advantage abroad, and an increasing number who have studied English– what we call cultural synergy – and to mitigate the cross- during their education. Training is available for people whocultural problems that might arise.” joined before we became a global company, but who need English.”According to Nandita Gurjar of Infosys, her global IT servicescompany attempts to narrow cultural gaps through its Ms Kang , who previously worked in executive search forrecruitment and selection process by seeking out those Korn/Ferry in China, makes a distinction between the Chinesewho have the ability to deal with people from different professional class, such as Fosun’s investment experts, andbackgrounds. “When we are interviewing either an internal or the often less educated managerial class, whose Englishexternal candidate for a managerial position which requires tends to be less advanced. “Western multinationals oftencross-border work, we ask them lots of questions about how limit themselves to English-speakers and thus miss out onthey handle cultural differences. This is particularly true for people with excellent operational experience who don’tmore senior positions.” speak English. They miss out on top talent that way. They need to find ways to enlarge the pool, for example by offeringThe company makes a special effort to familiarise new language training.”recruits with Indian working culture by means of an extensive © The Economist Intelligence Unit Limited 2012 17
  19. 19. Competing Across Borders: How Cultural And Communication Barriers Affect Business ConclusionF uelled by the winds of change blowing through the world economy; business is becoming more international by theday: some companies are doing it on their own initiative to The senior executives and management experts surveyed and interviewed for this report have made it clear that, the task of overcoming cultural and linguistic barriers is a difficult butcapitalise on opportunities they have spotted, while others not an impossible one. It may have to be done differently atare pushed into it by slowing growth in their home markets. different organisations, but the risks posed by ineffective orWhatever the reason for expanding outside their home less than ideal cross-border collaboration and communicationcountries, companies have clearly recognised the impact that can be measured, and the impact on financial performance cancross-border collaboration and communication with clients and also be quantified. That being said, the risks can be minimisedcolleagues from different countries, cultures and time zones by smarter recruitment and a workforce that is trained tocan have on their fortunes. Sometimes, as a few examples in handle the rigours of operating on an international stage.this report demonstrate, it can mean the difference between Companies just need to face up to the challenges, recognisesuccess and failure. the dangers of inaction and be innovative in their approach to solving problems that involve their most precious resource:The global survey of senior executives conducted for this their clearly shows that a significant number of companiesare stuck at the stage where they can recognise the benefits of As Flavio Liviero, chief project co-ordinator at Scania pointsovercoming cultural and communication barriers, but are not out, the good news is that the tools to manage culturalnecessarily doing enough to address this challenge. There may differences and communication challenges in business arewell also be a touch of complacency in the top echelons about improving and developing all the time. As companies becomehow much still needs to be done. Certainly, middle and senior ever more global in their quest for growth and efficiency, theymanagers appear more concerned about the current levels of will have to make increasing use of at least a few of them if theyinvestment in facilitating effective cross-border relationships are to prosper from the knowledge, diversity and opportunitiesthan those at the very top. Business leaders will sooner or later that come with doing business across borders.have to consider steps to narrow the gap between perceptionand reality on this issue if they want to ensure that theirstrategy to grow internationally is both a financial and anoperational success.18 © The Economist Intelligence Unit Limited 2012
  20. 20. Competing Across Borders: How Cultural And Communication Barriers Affect Business AppendixDoes your company have an international presence or has plans for international expansion?(% respondents)Yes 100How do cultural factors or differences such as language and local customs affect your companys plans for internationalexpansion?(% respondents) Hampers a lot 12 Hampers somewhat 52 Does not affect at all 20 Helps our plans for international expansion 17When planning expansion into any country, which of the following would you consider the most critical organisational factorsin enabling that expansion?(% respondents)Quality of collaboration with local partners, agents or distributors 46Ease of communication with potential customers/partners in target country 46Technical skills of local talent 32Cultural compatibility with target country 29Inter-personal skills of local talent 16Other 6 © The Economist Intelligence Unit Limited 2012 19
  21. 21. Competing Across Borders: How Cultural And Communication Barriers Affect Business How do you expect the following to change in the next three years? (% respondents) Will increase significantly/a little No change Will decrease a little/significantly The number of clients or customers located outside our organisations home country 89 10 2 The number of business partners or suppliers based outside our organisations home country 81 17 2 The number or size of cross-border teams in our organisation 78 21 2 The number of countries in which our organisation has an operational presence 77 20 4 Which of the following would you say are the most important factors for effective cross-border collaboration within your organisation? Please select up to two options. (% respondents) Employees with the right mix of communication, linguistic and business skills 43 Creating the right organisational structure(s) 34 Senior management support 27 Culturally sensitive team leaders 22 Robust company-wide technology 20 One language for internal cross-border communications 19 Effective training for working in cross-cultural teams 13 Appropriate and fair financial incentives across borders 9 Established process for conflict resolution 3 Other, please specify 1 Dont know 1 Overall, how important would you say cross-border collaboration is in the following environments? (% respondents) Very important Somewhat important Not important at all Dont know Within your organisation generally 59 38 31 Within your business unit or division 56 38 51 With external partners, suppliers or outsourcers in other countries 52 43 41 Please state the extent to which you agree or disagree with the following statements: (% respondents) Strongly agree/agree Neutral Disagree/strongly disagree Dont know Cross-border teams are a well-established way of working within our organisation 69 22 81 Better cross-border collaboration has been a critical factor in the improvement of our organisations performance in the past three years 64 27 71 The multicultural nature of cross-border teams breeds innovation 67 28 31 Collaborative team working within our organisation is more effective thanks to a diverse workforce (employees of different national backgrounds) 58 32 10 1 Cultural and linguistic diversity can make it difficult to collaborate internally across borders and with our external partners 51 28 20 1 Cultural and linguistic diversity in our company opens up cross-border business opportunities 66 28 5120 © The Economist Intelligence Unit Limited 2012
  22. 22. Competing Across Borders: How Cultural And Communication Barriers Affect BusinessOf the following, which are most likely to cause the greatest misunderstanding in cross-border communication for yourorganisation? Please select up to two options.(% respondents)Differences in cultural traditions in different countries 51Different norms of workplace behaviour 49Diversity of languages across countries 27Poor quality of translations 23Different accents of people from different parts of the world 12Other, please specify 4None – misunderstanding and ambiguity in communication are not an issue for us 7Dont know 1When communicating with business stakeholders (partners, customers or co-workers) across borders, how often would you saythat you or your organisation encounters difficulties?(% respondents) Very often 8 Sometimes 61 Rarely 27 Never 2 Don’t know 1In improving cross-border communications, how would you describe your company’s investment in the following?(% respondents) More than enough Adequate Not enough Negligible/ Non-existentManagement time spent on assessing impact of cross-border communication issues 6 60 28 6Technology to help improve cross-border communication 11 55 29 6Training to improve employees language and communication skills 8 46 40 6Conflict resolution of disputes arising from cross-cultural misunderstandings 7 51 30 12Recruitment and selection of individuals who are suited to cross-cultural environments 10 50 35 5 © The Economist Intelligence Unit Limited 2012 21
  23. 23. Competing Across Borders: How Cultural And Communication Barriers Affect Business To what extent can better cross-border communications improve the following at your company? (% respondents) Improve significantly Improve somewhat Not at all Dont know Profit 33 55 7 5 Revenue 35 54 7 4 Market share 35 51 8 6 Which of the following (internal factors) are likely to benefit the most from an improvement in your companys cross-border communications? Please select up to two options. (% respondents) Strategy 39 Business operations 38 Innovation 35 Productivity 26 Workforce productivity 21 Employee morale 19 Technology 6 Financing 4 RD 4 Which of the following (external factors) are likely to benefit the most from an improvement in your companys cross-border communications? Please select up to two options. (% respondents) Relationship with clients or customers in overseas markets 55 Sales in overseas markets 43 Branding and market reputation in overseas markets 40 Relationship with regulators in overseas markets 17 Relationship with supply chain 15 Relationship with overseas investors 9 Relationship with media in overseas markets 722 © The Economist Intelligence Unit Limited 2012
  24. 24. Competing Across Borders: How Cultural And Communication Barriers Affect BusinessWhich of the following most applies to you?(% respondents)My ability to communicate with people from other cultures has helped me gain international experience 54Working in an international environment has helped improve my cross-border communication skills 41My inability to communicate with people from other cultures has greatly reduced my chances of gaining international experience 3My inability to communicate with people from other cultures has had no impact at all on my chances of gaining international experience 1I have no interest in improving my language skills in order to communicate across cultures 1Which language, if any, will your companys workforce need to know to execute expansion plans in key overseas markets inthe next five years?(% respondents)English 68Mandarin 8Spanish 6Russian 3Cantonese 2Portuguese 2French 2German 1Arabic 1Italian 1Arabic 1Hindi 1Vietnamese 1Other 3What proportion of your company’s workforce requires some level of international/non-native language skills in order toeffectively carry out their job?(% respondents) A very small percentage (less than 1%) 14 Up to 10% 20 Between 10% and 20% 20 Between 20% and 50% 21 Over 50% 25 © The Economist Intelligence Unit Limited 2012 23