Against a backdrop of low interest rates and stagnant economic growth, multinational corporations (MNCs) in Europe and the US have increasingly looked to expand their businesses in the more active emerging markets. Offering attractive growth opportunities, Asia remains a target for many companies, yet expansion prospects are not limited to companies in the West – Asian companies are also ambitious when it comes to expanding within the region.
The 2012 Fortune Global 500 list included 68 companies from Japan, 61 from China (up from 16 in 2005), 14 from South Korea, eight each from India and Taiwan, two from Singapore and one respectively from Malaysia and Thailand. Furthermore, research published by FTI Consulting in January 2012 indicated that 45% of companies in Asia were planning strategic acquisitions in Europe in the coming year.
While expansion both into and across the region appears attractive, companies operating in Asia must contend with a number of different challenges, not least that of language. According to 2012 research by the Economist Intelligence Unit, almost 50% of executives at MNCs report that language difficulties have dissolved cross-border business deals and caused significant financial losses for their respective companies. Chinese companies were affected even more so, with 61% respectively reporting financial losses as a result of failed cross-border transactions.
According to Anna Shevchenko, Managing Director at 3CN, language is the most dynamic reflection of culture. “But breaking down language barriers brings with it certain cognitive risks, as it does not always mean breaking down the barriers of perception.”
What’s in a word?
The spoken language also comprises a whole range of cultural and sociological symbols, argues Alain Bridoux, Consultant at Transnations, a cross-cultural consultancy, and formerly CFO of a Sandvik China joint venture. “Language barriers do not only include the understanding of words, but more generally the meaning of words and their true intentions as expressed by the person or organisation. This is important when it comes to indirect cultures where people do not easily express how they feel.”
This lack of forwardness can be illustrated by the strong sense of ‘saving face’ in Asian cultures, according to Bridoux. The Chinese word for face is mianzi and losing mianzi can be disastrous. Most companies conducting business in the region take care to avoid such a scenario, but it is quite possible to do something unintentional that causes offence: a Westerner, for example, is likely to ask someone for help or further explanation; this, however, would be viewed as a significant gaffe in China and could actually cause a breakdown in working relations.
Mingmei Chang, Vice President of Corporate Liquidity in China at SunGard, who is based in Shanghai, reports that many Chinese MNCs that SunGard work with, such as global giant Huawei, often outsource linguistic and cultural communication issues to independent consulting groups. Other companies are hiring interpreters to bridge the gap, despite the expense involved and the fact that they may not be entirely familiar with the complex subject matter.
Having someone with minimal experience as regards the material and discussions at high level meetings they are expected to decode may be a large risk for a corporate executive to take, but Bridoux was more than satisfied with the translator he worked with for nine months in his previous role at Sandvik.
“In many cases, she knew not just what words to use but how to talk to people in the best manner possible. I gave her some assignments to convey a certain message, speaking to her in a Western manner, which she was then able to pass on in a more subtle Chinese way,” he explains. Naturally, the amount of trust involved in this kind of relationship is enormous and something that not every manager would be comfortable with.
According to Sanmit Ahuja, CEO at ETI Dynamics, it is important to understand how sociological and economic factors play a significant role in this ‘disconnect’. “Up until the turn of the last century, North America and Europe were the two central pillars of the world and that domination is now being challenged by new rising giants. In corporate environments, many Western managers still have a ‘know it all’ attitude to whatever goes on in Asia or Africa and that does not go down very well in these regions,” he says.
Cross-border deals and mergers that have failed to be realised through misunderstandings and cultural slights – perhaps assisted by this historical arrogance – are playing havoc with the bottom line. Even if successful, differences post-merger can also hinder effective communication in various ways, whether at an executive level or for the average employee. For example, workers who are not fluent in the primary language used in the workplace may have difficulty expressing their needs or responding to requests from colleagues.
Despite the need for a deeper understanding of cultural and linguistic differences, many companies have been slow to come up with an appropriate solution. Some Asian corporates do not wish to acknowledge an issue at all and prohibit any sort of linguistic education for fear their staff will become “disobedient”, says Bridoux. “The success rate from all acquisitions in Asia is approximately 20% or lower. Language and cultural barriers have a large part to play in this breakdown, as it is uncommon in state-owned companies that employees would be allowed to learn English.”
A strong local workforce in Asia that could work closely with Western colleagues to execute corporate strategy is key to success.
Furthermore, the cost of failing to address this issue has not been adequately studied. So when a serious blunder is made, it’s treated as one-off human error rather than systemic, according to Dr. Kevin Lin, Managing Director, KL Communications. Yet, taking a small selection of recent cultural blunders, it is plain to see that the problem is much more widespread. Says Lin: “In 2005, Nike lost tens of millions when its advert containing cultural gaffes was banned in China. Google paid a reportedly seven-figure sum to buy its Chinese domain name. And Pfizer is selling Viagra in China under a far less eye-catching name than the one it was initially known for after failing to understand the difference between Viagra in English and what it might be in Chinese.”
It is clear that most corporates are actively looking for solutions for this communication divide because it can be a significant source of inefficiency between colleagues from different cultures failing to understand or misunderstanding each other’s intentions or views expressed either verbally or via email. However, there is much more to do, according to Lin. “The language and culture topic is rather like keeping fit. Everyone agrees it’s very important. However, far less would actually join a gym and even fewer regularly get on the treadmill,” he says.
Corporate culture
Janet Ming, Head of China Desk EMEA at RBS, has been working in London for the past year running RBS’ China desk. Using both Mandarin and English in daily working life, liaising between Chinese companies moving West and Western companies expanding into China, she has a unique view of the situation. She sees a principal difference in corporate culture between Asian companies, which are more relationship driven, and Western companies, which are more business driven. “In the West, there is more of a work/life separation, meaning executives don’t necessarily need to entertain clients in order to do business with them. Asian business, however, relies much more on personal time to build up relationships with clients.”
Ahuja agrees with Ming’s assessment. “For example, in India, it’s not unusual to celebrate a festival within the office or to invite the whole office to a family wedding party,” he says. “Moreover, in many parts of Asia, transactions and deals are done on a handshake, based on the trust between business associates, not the endless documents and bureaucratic process that Westerners prefer.”
Ming also says that Western companies are used to a free market environment and a clearly defined regulatory framework, so they find it difficult to understand when their Chinese colleagues or employees explain that certain things can’t be done or can’t be done consistently in all the locations they operate. On the other hand, Asian companies don’t fully comprehend the possibilities open to them.
An additional cultural challenge is the fact that in much of Asia – and particularly China, in Chang’s case – it can take years to develop business relationships. “In one case we spent five years building up a relationship with an energy company before any deal was signed,” she says. This is an aspect of operating in Asia which many Western companies often overlook and set their expectations on a more rapid return on their expansion projects than regional business codes can allow for.
Chang believes, however, that attitudes are changing as both sides become more adept at working together. Chinese companies are becoming more open and Western companies are adapting their expectations to the business culture. In a situation that requires both sides to make efforts, “you have to dance together,” she says.
Deep-rooted and pervasive cultural and socio-economic issues can also account for differences in management styles. In his book Outliers: The Story of Success, Malcolm Gladwell wrote: “Cultural legacies are powerful forces. They have deep roots and long lives. They persist, generation after generation, virtually intact, even as the economic and social and demographic conditions that spawned them have vanished.”
For example, the motto of the joint venture where Bridoux worked (in which the Chinese partner was an old state-owned company) meant that if you take enough little hands you can grind any complex problem. Explains Bridoux: “When the managers of the joint venture came across a complicated issue, their solution was to bring another ten or 20 people on board. This may be effective in simple construction work/situations but not at all feasible for complex industrial work. The difference in management style between ‘lean management’ and this type of bulk labour cannot be reconciled.”
Old habits die hard, especially when managers feel that their authority is in question. For example, according to a study carried out by the University of Melbourne in 2009, the introduction of English as a corporate language in a German MNC resulted in conflict between Japanese managers within the firm, as junior executives invariably had better English language skills than their seniors. Termed ‘power authority distortion’, the junior managers had better access to decision-making and more power than their bosses. Naturally this explains the reticence of management in some industries in adopting a uniform foreign corporate language.
No small task
Undeniably, a multicultural workforce can offer benefits such as a broader range of perspectives and a greater ability to compete in the global marketplace. But introducing new languages and cultures into a work environment can also create barriers that must be overcome. Settling on a common corporate language can help but, as mentioned above, some may resist this – if not openly, then ‘under the radar’ – and may even encourage subordinates and colleagues to do the same. This can then translate to discrepancies between company policy and employee practices.
Ming believes that the situation is improving. “The Chinese government has been proactively pushing English education, for example, but there are also young people in the West learning Mandarin and some of them even speak local dialects.” As language capabilities open up, so will a more tolerant approach to the varying cultural practices.
To move things further, much more is still needed. Western companies experiencing success in the more cosmopolitan and westernised eastern side of China, particularly in Beijing and Shanghai, will face far greater challenges as they seek to move into China’s interior provinces.
In order to successfully navigate Asia Pacific, Ming believes that a strong local workforce in Asia that could work closely with Western colleagues to execute corporate strategy set by the HQ in a more localised approach is key to success. Western companies need to begin to delegate to their local management and trust them to execute plans from top management. This shift is already noticeable as regional treasury centres are increasingly established in Hong Kong, Shanghai and Singapore to ensure decision making concerning the region is more effective.
Expansion plans
For any corporate expanding its operations globally, management needs to assess and acknowledge the scale of the task in hand. Says Ahuja: “How are you going to do business there? Are you still going to fly in for the relevant meetings? Or are you going to set up your own presence and employ trusted people that have been established there for a long period of time – those who understand the culture and have their own local connections, as opposed to depending on a third party or joint venture partner?”
The extent of the communication barrier to overcome will, at least in part, be related to the role of the employee within the company. Engineers will have numbers, graphs and common standards as communication aids, whereas managers in business and strategy meetings with people of multiple cultures and languages will be at more of a loss.
Developments in multimedia technologies can also assist. As technologies for video, digital animation and media editing become ever more sophisticated and widespread, the world is developing a new vernacular for communication. Skype, for example, helps when it comes to barriers of language, says Shevchenko. “We oversaw a consultancy project for one MNC where we asked the managers to use video cameras for their morning communication sessions – so they could see the facial expressions and identify if the message was understood. This dramatically improved the communication between offices.”
Elsewhere, the landscape is changing. According to Microsoft’s central market organisation lead for Asia Pacific, Frederique Covington Corbett, the industry has to start treating cultural knowledge as a professional competency, with the software company considering it a key proficiency skill for its staff. Large companies are now beginning to realise that they cannot make any real progress without taking linguistic and cultural barriers into account – and addressing them head on.
