50% of international joint ventures fail due to intercultural misunderstandings.
Companies today appear to have overestimated the level of intercultural training that their employees receive while in high-school and university. Unfortunately, the failure to address this specific skills gap is hurting overall productivity. To make matters worse, the issue is often overlooked as companies focus on the constant pressure to deliver.
Size Does Not Matter
People tend to think that only large multinational companies face these kinds of cultural issues. This could not be farther from the truth.
In today’s globalized business environment, teams of all sizes can end up working with people from different cultural backgrounds. It wouldn’t be unusual to find a Canadian executive working with a sales rep based in Hong Kong. Or for a company to have Singaporean, French, and Indian team members. Furthermore, the advancement of information and communication technologies has magnified cultural exposure for companies regardless of size.
The inevitable mix of beliefs and behaviors can, understandably, lead to conflict. So, how do you make sure that your diverse workforce can be productive? How do you avoid the risks associated with prejudices and biases?
Intercultural Incompetence: A Source of Inefficiency
Intercultural Experts often hear their client make comments such as:
- “Americans? Forget it, it’s pointless.”
- “It’s as if Indians live in a different world, we simply can’t work with them.”
- “We tried working with the Chinese, we weren’t able to agree on anything, it was just a mess.”
However, this mindset and an inability to overcome these issues can have detrimental consequences for companies. We can look at these issues in two categories:
- Cost optimization becomes impossible. Employee efficiency drops as the team struggle to work effectively between cultures. The lack of culture-specific negotiation skills also makes it difficult to sign the best contracts with suppliers and clients.
- Crucial business opportunities are missed. Organizations without a cultural edge can simply be overlooked as they are perceived as too difficult to work with.
When undertaking business dealings, one needs to step into the shoes of the person they are interacting with and understand their culture. With this understanding, it is possible to moderate what they say, how they behave and interact in the most appropriate way possible.
Unfortunately, this cannot be improvised. This is where intercultural training comes into play, and is why such training is so important for anyone who works cross-culturally. Without the right skills, even simple interactions between cultures can be painful, let alone negotiating a deal.
The answer is clear: To find success in today’s globalized economy, you need to increase your cross-cultural capabilities.
Intercultural Training: A Source of Productivity
To illustrate the value of intercultural training, here are two short case studies:
1. The British SME
James is the head of a British SME that sells lamps. The company buys its products in China and India and sells them all across the European Union to large retailers as well as different chains that specialize in furniture and housing equipment.
In 2005, the company reached a new level with 10 employees, but growth stopped. In order to adapt to his clients’ demands, James decided that the company would start putting together components gathered from different suppliers in order to produce its own models (out of pieces that were produced by others).
Sales rose again in Great Britain, however, the turnover made abroad in 2007 has practically not changed since 2005 whereas Swedish and German competitors were able to increase their market shares. James started questioning the skills of his team in terms of international negotiation. He comes to the conclusion that the level of proficiency that was required in the past to land a few international deals was clearly different from the amount of intercultural training needed to take international sales to the next level. In other words, at that particular moment, the sales team was not yet able to boost foreign revenues.
As he was in charge of buying products in China and India, James decided to take a course in negotiation with Chinese and Indians and receive training on how to approach and do business with them.
At the same time, each sales team member was sent on a customized intercultural training program that matches the set of countries each of them is responsible for.
As a result: while his competitors were being affected by the crisis of 2008 (which had a significant impact on the demand for such products), James’ company was recording yearly 10% increases in exports (thanks to the overall increase of sales team performance) and had even managed to reduce purchasing costs by 5%.
As revenue increased, the company was able to hire more employees, each of which received an intercultural training right after being hired. If we scale it down to the size of the company, James decision to pay for several days of training was an investment of significant importance. It, however, remains, to this day, the most profitable decision that was ever made since the creation of the structure.
2. The Metalwork Multinational
Pierre is the general director of a metalworking factory that belongs to the French subsidiary of an American multinational group. The factory produces components and substitutes for the other factories of the group.
When he first took the lead in 2007, he quickly realized that this production unit was losing momentum. During the last few years, work orders had become scarce (especially for new products). The equipment was slowly becoming outdated. French senior executives appeared less and less reliable to the eyes of the American board of directors and conflicts started to arise between the two parties.
In order for the future of the site to be secured, it was essential for the French team to talk the American board of directors into investing in a new production line. Indeed, the old one (which was used to manufacture the main product) did not allow for the factory to remain competitive.
However, the project was immediately rejected, right after the oral presentation to the American representative for the European area (despite the high quality of the products, the absence of delays and the acceptable profitability).
After an extensive series of meetings with the rest of the management team, Pierre understood that the problem lied entirely in the credibility that his team had to the eyes of the American directors. Why did his team appear not reliable, despite the positive results reached over the years?
He then decided to send his team on a two-day intercultural training program in order to better understand how to work efficiently with Americanss. Immediately after this, conflicts started to disappear and several initiatives went on without any corporate obstacle being met.
The following meetings with the board were prepared with a different approach, one that would match the American way of thinking. As a result: one year later, the highly strategic project for the factory’s production line change was approved and the French team’s credibility was restored.