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Cultural differences

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M&A School
ZEO University/AVentures Capital

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Cultural differences

  1. 1. Cultural variances at work Ivan Verlan February, 2017
  2. 2. 2 There are many common misconceptions about national culture Source: HBR (2013); Press Search; McKinsey Analysis Hierarchy, speed of decision making and workplace culture vary significantly and can cause integration failures even between companies within the western world It’s East versus West- Not Really!! MNCs send their employees on international rotation programs assuming it will give them the necessary cultural exposure, however they are restricted to closed group communities where their interaction is limited to expats from their own country – e.g. Korean villages in India Confusing international experience with cultural agility The Biblical image of Tower of Babel has become a reality. Culturally diverse team members can talk past one another and team work breaks down, little knowledge is actually shared and even universal knowledge like mathematics is open to interpretation Tower of Babel syndrome We need to go beyond stereotypes - gathering quality, rigorous knowledge and applying this flexibly – using it to inform us, but not to limit our thinking Stereotyping people Communication is only one of the many factors to be addressed while managing cross cultures Assuming cross culture = cross communication
  3. 3. 3 Wal-Mart lost 1 billion dollars Half of managers in MNCs believe national culture has led to financial losses National culture is important and has a big impact on business 51 49 We have suffered financial losses due to cross cultural problems No observed 13 53 34 Agree Strongly agree Don’t agree Over 87% of managers believe that better cross-border collaboration would improve their profit, revenue, and market share 49% believe cross-cultural problems have led to financial losses 1 EIU survey of 572 executives of MNCs (2012) ▪ Wal-Mart acquired two German store chains for USD 1125 Mn in 1990s ▪ Started using US management practices in these stores – and senior managers did not do enough to acknowledge German habits, preferences and labor patterns ▪ The first head of German operations insisted on using English as the business language ▪ It was losing about USD 150 Mn annually ▪ Finally Walmart exited with losses of over USD 1bn with the sale of operations to Metro AG SOURCE: Press search
  4. 4. 4 A bit about me (practical experiences in different cultures) 2011 ▪ Moved to France – MBA with INSEAD – 52 nationals in our ‘11J intake 2012-2017 ▪ Moved back to Ukraine, but… ▪ Transitioned to Big3 consulting, so: – 1.5 years in Nordics – Projects in Baltics, Balkans, Central & Southern Europe 2008-2010 ▪ Moved back to Ukraine – Transitioned to consulting – Worked in Ukraine & Russia 1985-2000 ▪ Born in Kiev/Ukraine – Russian-speaking family – 5 generations of Ukrainians, (Cherkassy, Fastov & Sumy) 2001-2008 ▪ Moved to USA (Philadelphia, but also Chicago & San-Fran a bit) – Bachelor’s studies – First professional job
  5. 5. Today’s agenda ▪ Theory ▪ Examples ▪ Practice ▪ Food for thought
  6. 6. 6 How can we talk about culture objectively? Hofstede's cultural dimensions Trompenaars and Hampden- Turner's 7 Dimensions of Culture Lewis Model - Cultural Dimensions … and many more theories • Late 60’s-early 70’s theory • 5 dimensions • Published in 1997 • 7 dimensions 
 (in appendix) • Published in 1996 • 3 categories: – Linear- Active – Multi-Active – Reactive Theory Hofstede's cultural dimensions Power distance index Individualism Index Uncertainty avoidance index Masculinity Long term orientation ▪ Extent to which people view inequality as normal ▪ This refers to the strength of the ties people have to others within the community ▪ This relates to the degree of anxiety that society members feel when in uncertain or unknown situations ▪ This refers to how much a society sticks with, and values, traditional male and female roles ▪ This refers to how much society values long-standing – as opposed to short-term – traditions and values
  7. 7. 7 Power distance 
 index A high PD score indicates that society accepts an unequal distribution of power, and that people understand "their place" in the system Example: In very high power distance countries like Malaysia (104), important meetings are usually closed door with only a select few people in attendance. 11 13 18 22 28 31 31 33 34 35 35 35 36 38 39 40 40 40 45 46 47 49 49 50 54 54 55 56 57 57 58 58 60 60 61 63 63 64 64 64 65 66 66 67 68 68 68 69 70 70 70 71 73 74 77 77 78 78 80 80 80 81 81 85 86 90 93 94 95 95 104 Venezuela Ecuador Serbia Indonesia Mexico Bangladesh Surinam China India West Africa Arabic countries Colombia Croatia Brazil Vietnam Hong Kong France Poland Singapore Slovenia Bulgaria Morocco Guatemala Malaysia Panama Russia Romania Philippines United States Sweden Ireland New Zealand Switzerland Great Britain Norway Jamaica Estonia Costa Rica Luxemburg Austria Finland Germany Canada Hungary Netherlands Denmark Australia Spain Belgium Turkey Portugal East Africa Malta Canada Greece Czech Republic Salvador Trinidad Israel Japan Argentina Korea (South) Taiwan Iran Pakistan Thailand Italy South Africa Chile Peru Uruguay Where do you think Ukraine fits?
  8. 8. 8 Individualism 
 Index A high Individualism score indicates loose connections and vice versa. Example: Guatemala scores low on Individualism index (6), this means that a marketing campaign designed around benefits to the community would be well received. 2 6 8 11 12 13 14 14 15 16 16 17 18 19 20 20 20 20 20 23 25 25 26 27 27 27 30 30 30 32 33 35 36 37 38 38 39 39 41 46 46 46 47 48 51 54 55 58 59 60 60 60 63 65 67 68 69 70 71 71 73 74 75 76 79 80 80 80 89 90 91 Canada Norway Italy Switzerland Denmark Sweden Belgium Ireland Germany South Africa France India Poland Austria Czech Republic Israel Spain Finland Estonia Luxemburg Malta Great Britain Australia United States Hungary Netherlands New Zealand Canada Vietnam Colombia Venezuela Panama Costa Rica Trinidad Pakistan Bangladesh China Taiwan Singapore West Africa Indonesia Peru Thailand Chile Salvador Ecuador Korea (South) Romania Japan Morocco Arabic countries Argentina Mexico Slovenia Turkey Philippines Surinam Hong Kong Guatemala East Africa Malaysia Uruguay Croatia Greece Bulgaria Russia Portugal Serbia Jamaica Iran Brazil Where do you think Ukraine fits?
  9. 9. 9 Uncertainty 
 avoidance index Example: Belgium scores high (94) on this index, so before a negotiation process it would be advisable to investigate the various options and then present a limited number of choices. 8 13 23 29 29 30 30 35 35 36 40 44 46 48 48 49 49 50 51 51 52 53 54 55 58 59 59 60 60 60 64 65 67 68 68 69 70 70 70 74 75 76 76 80 80 81 82 82 85 85 85 86 86 86 86 86 86 87 90 92 92 92 93 94 94 95 96 100 101 104 112 Japan Peru Salvador France Surinam Romania Poland Spain Argentina Serbia Colombia Costa Rica Hungary Korea (South) Israel Mexico Croatia Chile Panama Turkey Bulgaria Guatemala Portugal Greece Uruguay Russia Belgium Malta South Africa Vietnam Sweden Hong Kong Great Britain Malaysia China Slovakia Norway Philippines New Zealand Singapore Ireland India Canada Australia Indonesia Denmark United States Estonia Italy Venezuela Taiwan Czech Republic Bangladesh Iran Arabic countries Canada Brazil East Africa Jamaica Switzerland West Africa Ecuador Thailand Germany Finland Austria Trinidad Netherlands Pakistan Luxemburg Morocco Where do you think Ukraine fits?
  10. 10. 10 Masculinity
 (vs. Femininity) In low masculine societies you see women and men working together equally across many professions. Example: Sweden (5) has the lowest masculinity index and if one has to open an office there, the focus should be on having a team that was balanced in terms of skill rather than gender, whereas in Japan (95), you may have more success with a male team lead. 5 8 14 16 19 21 26 28 30 31 34 36 37 37 38 39 40 40 40 40 42 42 42 43 43 43 44 45 45 45 46 46 47 47 48 49 50 50 50 52 53 53 53 54 55 56 56 57 57 57 58 58 61 62 63 63 64 64 64 66 66 66 68 68 69 70 70 73 79 88 95 Germany Colombia Mexico Philippines Jamaica China Ireland Poland Ecuador South Africa Great Britain Belgium Australia Hong Kong Czech Republic India Argentina Bangladesh United States Trinidad New Zealand Greece Hungary Japan Austria Italy Switzerland Venezuela Korea (South) Costa Rica Slovenia Denmark Estonia Portugal Finland Bulgaria Croatia Russia Vietnam Sweden Chile Thailand Uruguay Salvador Guatemala Netherlands Surinam Taiwan East Africa Arabic countries Brazil Canada Canada Serbia Malta Turkey Morocco Spain Norway France Romania Israel Indonesia West Africa Panama Pakistan Iran Peru Malaysia Luxemburg Singapore Where do you think Ukraine fits?
  11. 11. 11 Long-term
 (vs. short-term) In countries with a high score, delivering on social obligations and avoiding "loss of face" are considered very important. Example: People in the U.S. don't value tradition as much as many others, and are therefore likely to be willing to help you execute the most innovative plans as long as they get to participate fully. 13 16 19 19 23 25 29 30 30 30 31 31 31 32 33 34 38 39 40 40 41 43 44 44 46 48 50 56 61 65 75 80 80 87 96 118 Hungary Norway Brazil Ireland Thailand Denmark India Netherlands Finland Switzerland Singapore New Zealand France Poland Sweden Germany Austria Australia Bangladesh Belgium Italy Hong Kong China Taiwan Vietnam Korea (South) Japan United States Portugal West Africa Great Britain Canada Philippines Spain Canada Czech Republic Where do you think Ukraine fits?
  12. 12. Contents ▪ Theory ▪ Examples ▪ Practice ▪ Food for thought
  13. 13. 13 Differences in Negotiation styles of different cultures
  14. 14. 14 Negotiations are quick and straightforward; Facts more important 
 than any relationships SOURCE: Press search Attitudes and Styles ▪ Highly focused on individualism and personal initiative ▪ Business relationships are only moderately important ▪ In the United States, money is a key priority ▪ American negotiators focus mostly on near-term benefits and are fiercely competitive Sharing of information ▪ There are hardly any significant delays in gathering information and discussing details ▪ They rarely take it negatively if you ask about sensitive details ▪ Americans expect straightforward answers Pace of negotiations ▪ 'Speed matters’ and ‘time is money’ are beliefs most members of this culture share. ▪ American negotiators may use pressure techniques that include opening with their best offer. ▪ Silence can be a particularly effective pressure tactic to use against the U.S. side. ▪ Americans will use walkouts only to make a final point, almost never as a tactic Bargaining ▪ While most Americans are comfortable with moderate bargaining ▪ Negotiators in the U.S. often take firm positions at the beginning of the bargaining process. ▪ Prices may move by about 20 to 30 percent between initial offer and final agreement. Decision Making ▪ Levels of hierarchy in American companies vary considerably ▪ Older and more traditional ones can be quite hierarchical, while others often show flat hierarchies ▪ Empirical evidence and other objective facts weigh more than personal feelings ▪ Americans are generally risk takers and will not shy away from making bold moves
  15. 15. 15 The French focus on logic and are very detail oriented; Negotiations 
 can take long but French dislike bargaining SOURCE: Press search Attitudes and Styles ▪ Negotiators in this country are very passionate and can appear outright aggressive ▪ The French may not always show a win-win attitude ▪ Rely on logical reasoning more than emotions ▪ People may be unwilling to agree with compromises Sharing of information ▪ French negotiators may spend a significant time gathering information and discussing details ▪ They rarely take it negatively if you ask about sensitive details ▪ The French value Cartesian logic, that is not to take anything for granted until it is demonstrated. Pace of negotiations ▪ Negotiations may be slow to start. ▪ Bargaining and decision making can take a long time ▪ Deadlocks or disputes are resolved by focusing on logical reasoning and facts Bargaining ▪ The French are not fond of bargaining and strongly dislike haggling ▪ Prices rarely move by more than 25 to 30 percent between initial offers and final agreements. ▪ Corruption and bribery are rare in France, Both legally and ethically, it is advisable to stay away from giving gifts of significant value. Decision Making ▪ The country’s business culture is quite hierarchical ▪ The French may examine every minute detail before arriving at a decision ▪ Decision making is a very slow and deliberate ▪ It is an accepted practice to work around rules and regulations if needed ▪ Decision makers are usually senior executives who accept responsibility
  16. 16. 16 Negotiations are slow with a lot of focus on bargaining; Strong focus 
 on business relationships and emotions can be used to close deals SOURCE: Press search Attitudes and Styles ▪ They expect long-term commitments from their business partners ▪ The primary negotiation style is competitive ▪ The best way to proceed is to show your commitment to the relationship and refrain from using logical reasoning or becoming argumentative Sharing of information ▪ They spend considerable time gathering information before the bargaining stage of a negotiation ▪ Be careful with what you are willing to share yourself and protect your intellectual property. Pace of negotiations ▪ Negotiations to be slow and protracted. They are often an attempt to obtain concessions ▪ The Chinese generally employ a polychronic work style. They are used to pursuing multiple actions and goals in parallel ▪ They prefer to bargain over several items at the same time ▪ Many businessmen make the mistake of “trying to speed things up”, by offering concessions too early Bargaining ▪ They are shrewd negotiators, and bargaining is the key style used by them. ▪ Prices may move by 40 percent or more between initial offers and final agreement. ▪ They do not employ aggressive tactics. ▪ Emotional techniques may be used to get favorable deals Decision Making ▪ Organizations are usually very hierarchical ▪ Decision making is normally a consensus-oriented group process in China ▪ They usually consider the specific situation rather than applying universal principles. ▪ Personal feelings and experiences weigh more strongly than empirical evidence
  17. 17. 17 Brazilians can be tough negotiators; spend a lot of time in small talk before leaping into business; have a tendency to avoid conflict SOURCE: Press search Attitudes and Styles ▪ Brazil’s culture is generally group oriented ▪ Value lasting and trusting personal relationships, and long term commitments ▪ Attitudes based on beliefs of male dominance remain strong in this country ▪ Power and status may sometimes be more desirable than financial gains Sharing of information ▪ Emotions are usually shown very openly ▪ They usually avoid open conflict ▪ May be reluctant to disagree openly with someone they like Pace of negotiations ▪ Brazilians do not ‘leap right into business’, but spend considerable time on small talk ▪ It is unrealistic to expect initial meetings to lead to straight decisions Bargaining ▪ Brazilians can be tough and sometimes very aggressive negotiators ▪ Most will indulge in hard bargaining ▪ Prices may move by 40 percent or more between initial offer and final agreement Decision Making ▪ Most Brazilian companies are intensely hierarchical ▪ Decision makers are usually top executives, who may not consult others ▪ Dealings are mostly with subordinates who have no decision-making authority
  18. 18. 18 Attitudes and Styles Sharing of information Pace of negotiations Bargaining Decision Making Summary on “must know” cross-cultural negotiations specifics SOURCE: Press search ▪ Hot debates, hard at compromises ▪ Logic prevails ▪ Win-win attitude not frequent ▪ Demand strong reasoning ▪ Open to sensitive details ▪ Sluggish at information search & discussions ▪ Negotiations are slow to start ▪ Slack bargaining & decision-making ▪ Bargaining and haggling are not welcome ▪ No way for bribery ▪ 25-30% price movement possible ▪ Hierarchy is crucial ▪ Very slow process ▪ Rules & regulations can prevail ▪ Business first ▪ It’s all about money ▪ Individualism ▪ Short-term focus ▪ Straightforward style ▪ Open to sensitive details ▪ Rare delays ▪ Time is money ▪ Use of pressure techniques ▪ Silence to be used as pressure tactic against US ▪ Moderate bargaining is ok ▪ Firm positions at negotiations start ▪ 20-30% price movement possible ▪ Hierarchy in Business varies ▪ Empirical evidence prevails ▪ Risk-taking attitude ▪ Relationships & loyalty are crucial ▪ Competitive style ▪ Long-term focus ▪ Profound research before bargaining ▪ Be cautious about IP and personal details ▪ Slow negotiations, way to win concessions ▪ Polychronic work style ▪ Bargaining over several items at once ▪ Shrewd negotiators ▪ No way for aggressive tactics ▪ 40% price movement possible ▪ Strong hierarchy ▪ Consensus-oriented attitude ▪ Personal feelings prevail ▪ Group orientation ▪ Masculinity ▪ Power & Status desired ▪ Long-term focus ▪ Open conflict avoidance ▪ Open emotions ▪ Hard to disagree with somebody they like ▪ Small talk is a must ▪ Initial meetings rarely lead to straight decisions ▪ Tough negotiators ▪ Use hard bargaining ▪ 40% price movement possible ▪ Usually strong hierarchy ▪ Top executives are decision makers
  19. 19. 19 Some other learnings from own subjective observations Do you think these look like stereotypes? Well, maybe they just are… Nordics Dutch Australian British Germanic Japanese Mediterranean Indian ▪ Logic-oriented: if a “story” sounds right, major quant proofs are less relevant. Able & willing to make decisions fast. ▪ Uber-direct: talk what they think, with no intricacies or softening elements, therefore can be considered rude. ▪ Easy-going: generally relaxed (sometimes too much), so can handle stress well, but may fail at fast-paced crunch-time ▪ Proper: polite & cultured manners hide true thinking too much, translation needed to read through their “understatements” (vs. Dutch) ▪ Punctual & Detailed: extreme punctuality and love of detail, with quantified back-ups a must! ▪ Dolce Vita & Style: extreme attention given to (1) the way you relax and (2) to your personal style. Style symbols play a strong role. ▪ Introverted: quite ritualistic and closed in terms of feeling & thinking. Highly hierarchical. Requires detail & precision. Never say “No”. ▪ Indian time: always late at least 30 minutes, no value in punctuality. Always say “yes”, though may not agree and may fail afterwards.
  20. 20. Contents ▪ Theory ▪ Examples ▪ Practice ▪ Food for thought
  21. 21. 21 Let’s spend next 45 minutes doing the case study together Camel’s Milk and Lamb’s Liver
  22. 22. Contents ▪ Theory ▪ Examples ▪ Practice ▪ Food for thought
  23. 23. 23 Besides “national cultural” differences, there are, of course other things to consider: Functional cultures: ▪ Operations ▪ Commercial – Marketing – Sales ▪ Accounting ▪ Strategic team ▪ … National cultural differences: ▪ Brits vs. ▪ Yankee’s vs. ▪ Germans vs. ▪ “Soviets” vs. ▪ Ukrainians vs. ▪ Japs vs. ▪ … Industrial cultures: ▪ Entrepreneurs ▪ High-finance ▪ Techie’s (IT hard- & software) ▪ Hard-core industrials ▪ Fashion ▪ Retailers Personality traits
 (below based on 
 Myers-Briggs): ▪ Extraversion/Introversion ▪ Sensing/Intuition ▪ Thinking/Feeling ▪ Judging/Perceiving The way we interact ▪ Let’s discuss!
  24. 24. 24 In summary: ▪ National/cultural upbringing has a concrete impact on the way people communicate, think, perceive the world, and judge others ▪ Specific nations have more pronounced traits here and there (e.g. XXX) ▪ It is not only national heritage, but also industrial culture, functional culture and personal traits that play a role in the way we interact ▪ KNOW YOURSELF & YOUR AUDIENCE!
 When you are preparing for a high-stake communication (short-term, e.g. pitch, or long-term, e.g. partnership or long-term execution contract), tailor your behavior to your audience ▪ More reading materials here: https://drive.google.com/drive/folders/ 0B_OHnMRMSVoneEdEU3VvWXRXRlE Remember – perfect cultural approach does not substitute content, but it can help avoid unnecessary barriers ☺

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