How Business Culture Affects Your Business

Hi, I’m Zacharias Beckman, President of Hyrax International. We get a lot of questions about how business culture affects business on a day to day basis.

Sarah, a project manager here in America, is very successful at what she does. She’s got a lot of successful projects under her belt. But right now she’s having problems. It looks like the project that she is working on is going to ship late. There are lot of quality problems with it.  It’s over budget, it’s behind schedule, and Sarah is very frustrated. All of the techniques that she’s been using in the past aren’t working for her now. She feels like she is  not getting the feedback from her team that she’s used to getting. For example, she proposed some changes to quality assurance system and instead of getting feedbacks, there’re silence, delays and  then finally the team agreed to implement what she had proposed.

In a typical Western style, she is expecting very clear communication from her team.  Direct, critical feedback on the project and on the proposed changes that she is making. The problem is, her team is in Asia and they don’t think  that she knows she is doing. She asks too many questions. She doesn’t demonstrate the authority and the wisdom necessary for the team to feel like she’s in charge of the project.  They are not accustomed to this kind of management.

Sarah’s run into a couple of business cultural preferences. She’s experiencing power distance, which is the separation between a boss  and a subordinate, and how they ‘re allowed to communicate because of cultural constraints. And she’s also experiencing differences in communication style — the low context, direct communication of the West versus the very high context, rich and subtle communication of the East.

Sarah’s solution in this case is to get business cultural training and understand how her management style differs from what her team is used to and then adapt  her management program, her project management technique, to work well with her team is Asia.

Check our website for more information on both of these business cultural preferences. I’ve blogged about them quite a bit in the past.

And if you are managing an International multicultural team, it’s really important to understand how much business cultural preferences will affect your project and your management style. You need to be sure that the project management methods you’re putting into play, are going to work with your multinational team.

Engagement Style And International Success

If you missed the first part of this six-part series, see: Part 1 of the series, Creating An International Culture Of Success, or see the entire series right here.

Engagement Style

Do we get right down to business, without knowing much about the other person — or, do we build a strong and trusting relationship, only talking about business after we know each other well?

Sending a delegate to represent an American company must be well thought out before departure. This delegate must have authority as well as longevity in the organization. Replacing delegates during the relationship should be done with care and planning. The new contact will need to be brought in slowly to transition the relationship. It is wise for American firms to engage more than one delegate to a relationship with the BRIC or they risk the business leaving with a delegate who departs. — Moore, Brandi, The Little BRIC Book.

Most cultures throughout the world choose the latter path: A relationship-driven engagement style. Conducting business outside of the “in group,” the trusted circle of family, associates, and professional contacts that you know well, is unheard of. It is far better to go into business with someone that you know well, even if the price or product isn’t the best. You know what you’ll be getting. Furthermore, the combined influence of your in group means everyone will do their best for you — and if they don’t, there are always solutions to improve the situation.

The Western, venture-driven style is very different. It’s found in relatively few cultures — probably less than 10% or so of the world. America is perhaps the most dramatic example of a culture that believes in doing business first. It’s a message driven culture, promoting products, uniformity, and a “best product and best price gets the business” ideal. Some of this ideal is beginning to leak into other cultures, but culture doesn’t change quickly.

The Global Project Compass identifies the following management disciplines as being most directly affected by engagement style:

  1. Accounting Policy & Costing
  2. Risk Management
  3. Procedure & Outsourcing Management
  4. Business Continuity & Recovery
  5. Information Assurance & Security

Accounting Policy & Costing

Policies regarding accounting and cost management are deeply affected by engagement style. Strongly relationship driven cultures tend to support more relaxed, flexible policies when it comes to managing the flow of money. This flexibility affords hiring family members, awarding favored contracts to close allies, and giving favors such as gifts for professional favors.

Unlike relationship driven cultures, many cultures focus on cost and performance first, and enact policies accordingly.

Venture driven cultures tend to support stronger accounting and cost management policies, leaning more heavily on the rules of business. This is particularly true in countries such as the United States, Switzerland, and Germany. In such cultures, the favoritism afforded by strong relationships is regarding as nepotism or corruption.

It’s important to remember that both systems are unique and both kinds of cultures feel their system works very well.

Risk Management

Different cultures approach risk from very different perspectives. Cultures that prioritize relationships tend to view those relationships as a means to avoid risk. Awarding an important contract to a close relative or friend provides security. The close relationship helps eliminate unknowns. While price and performance may not be the best, they are known. The strong “in group” network that defines the relationship means everyone will want to support the in group. Performance becomes a matter of saving face.

Venture driven cultures tend to equate risk reduction with choosing the best performer. Giving favored treatment to friends and relatives is viewed as a risk, and potentially disastrous. This usually means taking as objective an approach as possible. Contracts are awarded based on price/performance analysis, and risk is reduced by evaluating past performance. Contingency plans for poor performance generally involve financial penalties or having a contract revoked (not something a relationship driven culture is comfortable with).

Procedure & Outsourcing Management

As pointed out above, the typically “Western” venture driven style eschews anything that seems like favoritism. When talking about outsourcing this is probably one of the biggest differences between venture driven and relationship driven culture. The relationship driven culture will stick to its in group, favoring existing relationships. The venture driven culture assumes that every project must be objectively awarded based on performance criteria.

This also shows up in organizational procedures. Venture driven cultures tend to have written procedures that are enforced through business mechanisms (such as forms, systems, and policy review). Relationship driven cultures, on the other hand, rely more on informal, cultural procedures. Important policies are enforced not by forms and systems, but by the peer network and cultural environment.

Business Continuity, Recovery, & Security

Who is responsible for the continuity of the business? Many venture driven cultures will push for a separation of concerns, using an objective, often outside third party. This might be a service provider responsible for auditing and securing an information network.

Relationship driven cultures tend to prefer a more closely-held approach. Sensitive information is often controlled internally, and important individuals within the organization are tasked with ensuring continuity.

Each culture’s approach to security and information management can be very different. Probably the most dramatic example of this is the American view on intellectual property protection versus that of Chinese culture. While China is definitely changing, the American perception that intellectual property is owned and protected by law is not commonly shared in China. We routinely hear stories about how products are copied in record time in the Chinese market — and U.S. firms are constantly evolving strategies to stay ahead of the Chinese copycats.

Cover graphic attribution: The artist and visual designer Yang Liu was born in China and lives in Germany since she was 14. By growing up in two very different places with very different traditions she was able to experience the differences between the two cultures first-hand.

Where To Invest Around The World In 2014

Are you looking to diversify your investments, spreading your money around the world? It’s a great idea. A multinational investment strategy protects you from fluctuations in one region. But in today’s tumultuous world, with geopolitical upheaval and unsteady markets, where should you invest?

Daniel Altman may have what you need. In Foreign Policy’s Where To Invest Around The World, 2014 Edition, he offers some great insight. His Baseline Profitability Index (BPI) maps economic growth, financial stability, physical security, corruption, expropriation by government, exploitation by local partners, capital controls, and exchange rates. His goal: To map the total pre-tax return on investments in a region.

Baseline Profitability Index (BPI)
Baseline Profitability Index (BPI)

Darker countries indicate a higher score on Daniel Altman’s Baseline Profitability Index for 2014, meaning they are a better bet for foreign investment. The index considers asset growth, preservation of value, and repatriation of capital. Botswana ranks the highest in 2014 with a BPI value of 1.31; Venezuela ranks the lowest at 112, with a score of 0.63.

As Altman writes, the shifting global landscape has moved a lot in the past year: “In just the past 12 months, quite a lot has changed in the global investing environment. Some struggling economies have found their feet, notably in Europe, while others around the world have fallen victim to conflict. A few have improved their economic institutions, too; neighbors Greece, Macedonia, and Turkey all bolstered legal protections for investors, and nearby Azerbaijan strengthened its property rights.”

This year’s edition of the index has a few changes over last year. Most notably, a new source is used for measuring the likelihood of government expropriation. Altman is using the Index Of Economic Freedom in this 2014 edition.

The index suggests that not every fast growing country around the world is a great target for investment. You need to take into account the risks of each market — that’s the purpose of the index, after all. But it’s also important to make an educated decision. All indexes have their limits. For example, after switching to the Index Of Economic Freedom, China dropped from position 21 to 43 on the BPI. While the new approach is hopefully more accurate, it also illustrates why it’s important to understand the data.

Despite the change to the Index Of Economic Freedom, and shifts in the geopolitical landscape in the past year, India has maintained its position at number 6 on the index. Altman feels this is, “In large part because of the potential for real appreciation in the rupee.” He adds, “This may now be more likely than ever, thanks to Narendra Modi’s supposedly reform-minded government and the strong hand of Raghuram Rajan at the central bank.”

Creating An International Culture Of Success

The International Business Dimension

Multinational teams present new challenges for the International manager. There are logistics problems: How do you coordinate teams that work in different time zones? What kind of collaboration can you create in a team that rarely sees one another?

As well as the logistic problems come cultural problems. For example, successfully creating a culture of innovation can be a challenge. Honeywell experienced this, according to a November, 2013, Time article, when Rameshbabu Songukrishnasamy began working as general manager of the company’s R&D centers in Shanghai and Beijing. He found his employees were not innovating. They weren’t tinkering or inventing on their own — not a positive sign in an R&D lab! “They were happy just doing what they were asked to do,” Rameshbabu says. The problem is, R&D is about doing something new.

A project manager for a large corporation in Brazil recently told me that the PMI Book of Knowledge is used infrequently at best inside Brazilian projects. He also warned against assuming that someone with a PMI certification has extensive experience, as is the case in the US. — Moore, Brandi, The Little BRIC Book.

Rameshbabu found that his Chinese workers had a fear of failure. They worried that the company would be upset if their work did not yield positive results, so they didn’t experiment. Another problem is that some Chinese engineers “tend to shy away from critical questioning,” a process that is fundamental in R&D. “The reason they are able to make so much innovation in Silicon Valley is that people question the status quo and find alternative ways,” says Rameshbabu. But he found that Chinese culture and education focused on rote learning, not critical thinking.

Creating A Culture Of Success

Creating successful International programs requires understanding and adapting to different business cultures. Applying Western management practices in Asia will fail, just as surely as transplanting Western employees into an Eastern environment. Imagine an independent, critical thinker from Silicon Valley landing in Foxconn, Shenzhen — where challenging the status quo is forbidden.

Team dynamics play a huge factor in management style, objectives, and capabilities. Building a culture of innovation is just one example of where these dynamics become complicated. Power distance will affect everything from goal setting to how problems are socialized. Communication style can quickly lead to misunderstandings. Differences on the fluidity of time can mean completely missing the mark with customer deadlines. And differences in identity and engagement style can lead to initial confusion, bad first impressions, or distrust.

This is why understanding business cultural practices is so important. Hyrax International LLC has a program that explores each of these five preferences. The program examines each of 27 different management disciplines, such as goal setting, risk management, change management, and assessing outcomes. The affect of business culture on each discipline is explored and explained, providing a road map to success on the International management scene. The company also offers many free resources to explain and explore International project management, and is also sponsoring Successful International Project Management, an in depth book that maps project management processes to cultural preferences.

We’ll be posting five more parts to this article (read Part 2, or see the entire series right here) in the coming couple of weeks. Each post will look at one of the five business cultural preferences, and briefly introduce how that preference impacts and affects the 27 management disciplines.

Hyrax International LLC’s Global Project Compass™ is the only visual map that clearly shows the connection between business culture and business process. This is what makes Cross Cultural Management™ so much more effective than traditional management.

The Compass maps 27 project management disciplines directly to business cultural preferences, and shows how these preferences affect business. The goal of the Global Project Compass, and Hyrax International’s associated management program, is to show how culture affects businesses worldwide — and to provide a clear map on how businesses can adapt successfully.

Did you know India has a little more risk today?

Euler Hermes, the 100-year-old trade credit insurance firm, has a fantastic little tool for assessing credit risk around the globe. Euler Hermes monitors country risks in 241 countries and territories. Their country risk map aims to assess the risk of non-payment by companies in a given country.

In other words, if you’re thinking of developing a new market, you can use this little tool to see how likely (or unlikely) it is you’ll get paid. The map is interactive, and updated periodically to reflect changes in the global economy.

As many of you know, we do a lot of business in India — so, I was pretty surprised to see that Euler Hermes upgraded India from “low risk” to “medium risk” this year. In retrospect, while it took me by surprise, it probably shouldn’t have. India still suffers from an immature business market. I can see how this can translate into higher credit risks.

Country Risk Map
Country Risk Map, Euler Hermes (click to open)

It also underscores how important it is to work with a trusted source, and an experienced partner, no matter what country you go into. Euler Hermes is one such resource when it comes to insuring your revenue stream — whether its import/export, manufacturing, or even R&D. If you’re doing International business, trade credit insurance is a must, and these guys know how to do it well.

Getting back to India: Yes, maybe it is a little bit more risky today, at least when it comes to credit risk. But that’s no reason to stay away, it just means you need to account for those risks. Engage with a partner that really knows how to work with India, take the right precautionary steps (such as using trade credit insurance), and move forward with your eyes open. India is an incredible market opportunity, and not one to shy away from!

How Do I Find The Right Global Partner?

Businesses are thinking bigger now. Your partners need to understand your values, win business and support contracts for you, and vice-versa. But, finding the wrong global partner could be a huge blunder. Here are few tips to help you make the right decision.

Hi, I am Zacharias Beckman, president of Hyrax International and today I want to talk about finding the right partner to go into business with, overseas. A lot of our customers come to us because they are in business with the wrong partner. They found a great looking ad on the internet, they sourced a request for proposals, and they got back an excellent response. Before you know it, they’re signing a contact and they’re going into the business — really, with somebody that they don’t know.

The problem with this is that, on an international scale, contracts don’t mean the same thing that they do locally. Part of this is just a practical matter. Enforcing a contract overseas is very hard. It’s expensive, it’s time consuming. But more important than that, is that relationships are the core of business in most of the world. That means that to find a really good partner you have to build a relationship network. You’ve got to have feet on the ground, overseas, building connections that you can use to find partners that are trustworthy. Those connections are what’s going to help you find the right partner, internationally.

The most important thing here is that, when it comes to finding a partner overseas, you need to have a relationship. You need to have feet on the ground, you need to build a trusted network, and you need to create a relationship based in more than just a written contract. And you need to understand the culture in which you are doing business, so that you really know how to relate to and build that strong relationship with your new partner.

Solving cultural and logistic International project problems

Sometime in 2001, a New England firm that later became a client decided to outsource all of its software development to India. It seemed like an excellent idea at the time, as Indian intellectual property wage rates were roughly one-tenth of their U. S. counterparts. But the project went poorly: U.S.-based employees struggled to manage programmers located halfway around the world, and much of the work coming back from India didn’t meet the standards of quality expected by the U. S. firm. While the industry has improved, this is still a common problem today. How can a team located in a different culture, a different business environment, and surrounded by completely different ideas regarding acceptable customer service, adequately meet the quality demands of a foreign customer?

There’s a solution?

Before exploring a solution that solves the complex cultural and logistic issues of International projects, let’s take a quick look at the elements of a typical project. We can start by using a guide such as the Project Management Institute’s PMBOK®, or Project Management Body of Knowledge. The PMBOK quite effectively lays out much of the scope a project manager needs to be prepared to handle.

According to the PMBOK, every project has five phases in common:

  1. Initiating.
  2. Planning.
  3. Executing.
  4. Monitoring and Controlling.
  5. Closing.

During each of these phases, the project manager’s objective is to balance the competing constraints of scope, quality, schedule, budget, resources, and risk.

These constraints are, in and of themselves, often daunting. Add in the human element and often inevitable business politics, and projects can become difficult exercises in communication, motivation, and human psychology. In fact, the PMBOK spends a good bit of time discussing key areas where these factors play a major role. Stakeholder involvement, communication plans, getting an unbiased statement of work or progress, managing risks, and managing subcontracts — just to get the list started — are critical to achieving success on any project.

All of these factors combine to create a web of constraints that push and pull at the fabric of a project, often so much that the fabric doesn’t survive intact. For example, stakeholders may not have the project’s best interests at heart or may simply be uninterested in their day-to-day responsibilities. Budget constraints may require the project manager to make difficult decisions that affect the team, or the objectives of the project. Subcontracts are, by the very nature of business, first and foremost motivated by their own fiscal health and profit, not necessarily your best interests.

This is the landscape a project manager steps into on a daily basis. The larger an endeavor, the more significant these challenges become — even when the entire project is still in a single building.

International project problems… Solved

Now, expand the dynamics of the project to a global effort, involving International team members, foreign partners, and vendors that you seldom meet in a face to face setting. In fact, many global projects are “communications deprived,” due to geographic challenges. A global organization can often have project members spread across as many as 15 time zones. While advances in technology have led to tremendous strides in delivering reliable communication, teleconferencing or video conferencing a few times a week, in the early or late hours of day, doesn’t compare to frequent, in-person communication. Teams operate in a vacuum much of their day, making decisions they would otherwise not make on their own.

Think back to the New England based firm: All of these factors contributed to quality problems, as the team in India tried to deliver what they believed the client wanted, but failed. Lack of communication, cultural misunderstands, and business context that we take for granted was missing — and the project failed.

This is the vacuum into which Rational Scrum was created. Project management methodologies today don’t address the complex issues imposed by multicultural teams, working in widely distributed, International contexts. That’s what Rational Scrum is all about: Finding solutions for International project problems. Fuel for this blog comes from a few different sources, including my book Successfully Managing International Projects. I hope you’ll find the contents interesting!

For more information on Successfully Managing International Projects, sign up for our mailing list. You’ll get occasional, relevant updates and announcements as the publishing date grows near.