06 June 2016
Embrace diversity, be flexible and include different points of views when expanding overseas
Expanding overseas can create new challenges and risks for businesses that need to be managed and mitigated. So to be successful in their move, organisations need to develop new skills and competencies.
Many companies are entering new countries for a number of reasons: to explore new growth opportunities, especially in emerging markets; to respond to the needs of their international customers; to outsource production and back-offices to cheaper locations; and to respond to the increasing number of foreign companies making the reverse journey to do business in the UK.
Companies must adapt to new locations. For instance, they may have to adjust their product offerings to comply with foreign preferences or establish partnerships and joint ventures with local sponsors.
Unplanned changes in foreign operations also need to be prepared for, as well as unforeseen regulations or higher than expected costs. However, the single biggest challenge is to understand the new culture the organisation is operating within.
It is easy to recognise that different business practices prevail across the globe. For example, a quick desk lunch in the UK could last three hours in the Mediterranean or even a whole day in central Asia. The nature of the discussions can also vary considerably: Japanese businesses often go a long way around a negotiation so that they do not lose face.
Behaviours, norms, values and relationships are all culturally determined so it can be more difficult to reconcile conflicts when they arise. Not surprisingly, some personality types find it easier than others to adjust across cultural boundaries.
To overcome cultural differences, international companies usually employ a large number of local people or send over staff who are deemed to have sufficient international experience. However, that can lead to a new type of tension – that between the global and local office.
Matrix organisations are now the norm, but who has the upper hand and the final word? A simple rule adopted by large multinational companies, such as Shell and GE, is that in mature economies the local office should have a purely functional role.
In emerging markets however, the local office should have a more coordinating, even prevailing role, because that is what is expected by the local authorities and key local stakeholders.
Companies need to take steps to keep local autonomy while maintaining consistency with group standards and brand values. Compliance with industry safety standards and local legal requirements should be non-negotiable. It is also of paramount importance to ensure the morality and values of the company are maintained in different cultural environments.
Functional guidelines should be flexible to suit local market conditions. People buy from people, even in business-to-business markets, so the sales and customer management should be led by the local team, with the exception of global/key accounts.
Financial reporting is often dual in nature in order to satisfy both group reporting guidelines as well as local fiscal requirements. Many companies have centralised purchasing to achieve economies of scale but local needs and variations also need to be considered, especially when it comes to pre-qualified, powerful, local suppliers.
HR policies, talent management and employee benefits should be flexible to local norms and traditions. For example, the global head office in a North-Western European country – where taking public transport is the norm – may need to be sensitive to the fact that a (low-cost) driver may not be just a status symbol, but a practical requirement for the manager in an emerging market. In these countries, public transport may be less developed or traffic congestion can make any other form of travel entirely impractical.
Some global companies have gone even further and introduced complete flexibility around their HR policies. For example, Virgin’s latest initiative has been to entrust their staff with unlimited holidays, assuming of course they have completed their work.
Working across borders in a matrix organisation has introduced another challenge – that of virtual working. More often than not, middle managers are asked to lead a team that is distributed across many locations and which can span multiple time zones.
Speaking different languages is just the tip of the iceberg, although English has emerged as the de facto business language. Yet it is important to remember that what the British say, what the British mean and what non-native speakers understand could be three very different things.
Moreover, every chapter of the management book needs to be rewritten in a virtual version. Communication is a key success factor and technology is an enabler in this respect with mobile phones, video conferences and shared drives now readily available.
Companies should agree from first principles the basic rules of engagement and be prepared to learn as they go along; deciding what to do virtually and face-to-face, how/when to organise a virtual meeting and how to respond in a crisis is both an art and
Cultural differences are much broader in nature and can even emerge within the same company, as every organisation has its own ‘culture’ of doing business.
Creativity vs team spirit, passion vs control and work/life integration are a few of the cultural dilemmas that emerging leaders need to master. These conflicts can occur even between different personalities of the same team or between functions and they are amplified in the event of a merger or a joint venture.
Working across cultures is now considered a key part of the leadership skills that middle managers need to develop as they progress up the corporate ladder. New types of skills and competencies need to be developed to complement existing professional skills and this is applicable in many industries and sectors.
Successful companies, such as Google, are now incorporating these attributes as a key requirement in their selection criteria to ‘create a culture of trust and innovation’. Others have embarked on group-wide initiatives to change the underlying company culture – for example, BP’s ‘listen to the quiet voice’ current initiative.
Taking the step to establish an overseas operation is a significant one. Making it work is something that even great companies have failed to achieve in the past (take, for example, Tesco’s abortive Fresh & Easy US operation).
Embracing diversity, being flexible and including different points of views are all integral to establishing a successful overseas operation. Trust is the number one requirement to build and maintain strong multicultural relationships. Without it, nothing else can flourish.