The importance of cultural differences in local markets

Today, many companies intend to move beyond their domestic markets as international expansion offers access to massive customer bases and therefore – rapid growth. However, for such move it is of vital importance to take into account cultural variations and cultural barriers to communication, local customs, manners, and taboos, legal environment, negotiation and consumption habits, and a multitude of other challenges.

cultural differences

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Marketing and communicating across cultures poses several questions a company’s management will need to answer when moving to new markets: Will the company’s product/service work right for certain geography, local demand and cultural variations? Will the language barrier and cultural preferences require translating marketing stuff and re-adjusting products to be attractive in a local market, and how to overcome difficulties of cross-cultural communication? How to fit into local regulatory environment, understand existing risks, or, movement of product and finance? Any mistake along these lines may upset sales, cause legal problems, or leave customers unhappy.

Let us focus for illustration on the need to take into consideration local negotiation cultures, as it is practically impossible for any companies to get into a local market without negotiating terms with possible regulators, partners, or customers. Success requires a lot of patience, understanding cultural differences and ways of conducting business, as culture strongly influences how people perceive, communicate, and act. Wrongly enacting or misinterpreting communication across cultures affects transactions, while cultural differences between business executives can hamper or disrupt transactions. One such case was Enron’s huge, $3 billion investment in liquefied natural gas power plant project in India. Begun in 1992, the Dabhol power plant in Maharashtra state was to generate a fifth of India’s of electricity. However, endless disputes between the Enron’s subsidiary, Dabhol Power Company, and the Maharashtra state government over terms of the deal went so wrong that the deal collapsed, as the Indian side mistrusted the speed of negotiating process imposed by Americans.

Cultural specificity may define many aspects of negotiations. So, for Northern Americans a goal in negotiations is quickly concluding a contract, while only a minority of Indian executives would have a similar view, valuing more establishing trustful business relationship, as characteristic for high-context cultures. While Japanese businessmen claim that they approach negotiations as a win-win process, among Spanish executives few would agree to that. There are other subtle examples of cultural variations that influence atmosphere of negotiations, such as: physical distance between persons, especially in case of different gender (so, an Iranian businessman would never publicly shake hand with a female counterpart); attitude towards time and punctuality (Germans renowned for punctuality, Latin Americans forever late, Japanese proceed with transactions only too slowly, while Americans ever in haste to strike a deal); role of leadership/consensus within negotiating teams (Americans demonstrate authoritarian tendencies and small negotiating teams, while Chinese pursue consensus in their bigger, and slower to act, teams); using a mobile in public considered rude in Japan but common among Italians or Indians; finally, Americans are quick to address negotiating partners by first name to demonstrate friendliness, while for Japanese this is seen as an act of disrespect.

Glossary

Cross cultural communication: verbal or non-verbal communicational activity involving people from differing cultural backgrounds. The increasingly widespread communication across cultures is an essential characteristic of globalization and internalization of businesses, as global flow of information, capital, and people necessitates interaction between representatives of different nations, cultural and religious traditions, societal and educational systems, and habitats. This type of communication requires an understanding of how people from different cultures act, think, communicate, and perceive the world around them.

High-context culture: as opposite to the low-context culture (in which case businessmen and people in general, predominantly Westerners, tend to base decisions on facts and evidence rather than interpersonal trust, preferring all transactional specifics noted in contracts and other detailed documents), trust is considered the most important part of social interaction and business dealings, as characteristic for areas in the Middle East, South and East Asia, and Africa. Organizations in high-context cultures are collectivist and focus on interpersonal relationships, while individuals are focused on getting to know well their business counterparts in order to get an intuitive feeling on the issues in question, while also more concerned about group success rather than individual achievement.

Cultural barriers to communication: obstacles to successful communication between representatives of different cultures that imply different mindsets, languages, perceptions, values and attitudes between the communicating parties, accompanied also by various prejudices, ethnocentrisms, confessional devotions, business traditions, or political opinions. Among the easiest barriers to observe and cope with is the language barrier – as commonly representatives of different cultures would also speak different languages that may on one hand require the need of an interpreter as a mediator between communicating parties during verbal interaction, but may also imply different interpretations of words and concepts that may look very similar (as e.g. the so called translators friend), causing the risks of misinterpretation and misunderstanding.

Cultural variations: refers to the diversity in predominant mindsets, traditions (such as habitat, food, folklore, music, or clothing), languages (including mimics and body language), confessions, social practices and taboos, values, skills, opinions, prejudices and attitudes (such as esthetical or consumer preferences), that different cultures exhibit around the world. Examples of cultural variations are numerous, but may be well illustrated by the multitude of different linguistic practices (e.g. in India alone there are 122 major languages and around 1600 other languages, while in much smaller Papua New Guinea more than 750 languages are spoken), or in the forms of greeting that range from a simple handshake (and occasional kiss) in the Western cultural tradition to hongi – traditional Maori greeting in New Zealand done by simultaneously pressing noses and foreheads.