Managing culture risks

Cultural differences can affect the success of your global trade and your plans for expansion. Alan Waring discusses some practical risk management responses to cultural problems.

Managing strategic risks in overseas markets, including the risks posed by mergers and I acquisitions, requires reliable assessment. 1 Information from many standard sources is often incomplete or out of date and ignores vital issues. Difficulties may arise in the processes of doing business.

• Long delays and bureaucracy may add to costs and uncertainties.
• Failure to understand local legal requirements, social and political issues, the language and the subtleties of foreign cultures may amplify the risks of failure and financial loss.
• Crime, whether general lawlessness or becoming the victim of organised criminal gangs, is an additional threat in some territories.
• Political instability may threaten armed conflict, an unfavourable change of government and adverse trade policies.

 

Global perspective
In the global market, traditional western assumptions about other countries may be no longer valid, if indeed they ever were. Time and time again, foreign clients and colleagues emphasise the absolute requirement for cultural sensitivity -and say that British businesses are generally bad at showing it, compared to their foreign competitors.

Every society has its own set of imperatives and taboos, and characteristic expectations of how people should behave. Break those unwritten rules and business activities can become more difficult. For example, being persistently late for business appointments, or trying to renegotiate prices after a deal has been struck does not go down well in the UK. “Hard sell” tactics, trying to dictate the agenda, or even simply appearing a too pushy will be received badly in countries that hold business courtesy in high regard. This is particularly true of countries in the Middle East, Far East and South East Asia.

However, we are not in a-one-way market. For example, while UK companies continue to move into the Far East and South East Asia, companies from that region, especially Singapore, are active in buying up UK businesses. What does is this likely to mean for the purchaser and for the target company?

Foreign companies may not immediately appreciate the more sophisticated UK risk management experience. London Stock Exchange listed companies are required to demonstrate effective risk management and Turnbull compliance. In the UK, professional risk management practice continues to shift away from being insurance-dominated, towards a more eclectic strategy. Risk financing no longer obscures an organisation’s efforts to reduce and control pure risks and to enhance benefits and avoid the detriment relating to opportunity risks. In the Middle East and Asia, however, most organisations still regard risk management as meaning insurance. Attitudes often differ markedly between western and other cultures on such matters as:

• time and timetables
• bargaining and negotiating
• speculative risk taking
• monetary interest, debt and bribery
• payment
• nepotism
• personal safety
• health and safety
• child labour
• female emancipation
• sexual mores
• alcohol
• religious faith
• sovereignty and national identity.

 

Middle East
Significant cultural characteristics in the large, primarily Muslim, Middle East region include the following.

Valuation of time: Time is regarded as an elastic resource, and timetables, deadlines and the costing of time hold little importance. Gaps of 9-12 months are not unusual between stages of business development that would move much faster in the West. It is imperative to have a relaxed attitude to time and to show patience. Applying pressure for a decision, showing impatience, or imposing your timetable are taboo.

Language : Making an effort to learn the local language, whether Arabic, Farsi or whatever, will always be taken well and will be regarded as a sign of respect. It will strengthen relationships. As in any country, care is needed with subtleties. At a risk management project wash-up meeting in Tehran, there was general agreement that, from this small beginning, bigger things were likely to develop. With the “little acorns - big oak trees” model in mind, I remarked in Farsi, “az tokhm-e kuchik, derakht-e bozorg miyad”, literally “from a small seed, a big tree comes”. After a moment’s silence, my hosts erupted in laughter. Apparently, tokhm-e is also the expression for ‘balls’!

Sovereignty, national identity and pride: Criticism of, or jokes about, your host’s country, its religion or leaders are most inadvisable. Implicit criticism, such as extolling the superiority of western culture, is just as bad. Although there may be a general admiration of western inventiveness, technology and material advantages, this does not extend to approving the imposition of western culture on local people, to the danger of their own. Complaints about western cultural imperialism and “westoxification” are commonplace throughout the Middle East, from ordinary citizens to government ministers. » Avoid making comments about local politics and history, especially in a region with a turbulent past and present. For example, in Iran, favourable references to the previous Shah’s regime would be ill advised. The role of Britain and HP’s Anglo-Iranian Oil Company in the anti-Mossadegh coup in 1953 is still remembered with some resentment, even among those who do not support the current fundamentalist regime.

• Do not assume that the populations of all predominantly Muslim states in the Middle East are ethnically Arabs. For example, to refer to an Iranian, a Turk or a Kurd as an Arab is not only inaccurate but also may cause offence.

 

 

• Do not assume that all Arab countries speak the same Arabic or automatically get on well together. Lebanese, Egyptian, Gulf States and North African countries speak different dialects. For example, Arabs from al mesr (Egypt) speak pure Arabic and consider themselves superior to the rest. Arabs from the Arabian peninsula and Gulf oil states consider themselves to be more westernised, more sophisticated and better educated than others. Respect for age: Middle Eastern countries traditionally respect older people. This is reflected in employment practices whereby age and seniority go hand-in-hand, quite unlike the west. Failure to understand this basic difference can create business risks for western companies.

 

During a briefing I was giving for oil company executives going out to, or already working in, a particular Middle Eastern state, the project manager who was in his early thirties told me that he was having difficulties with their oil ministry that he could not fathom. A meeting scheduled with a very senior official had been cancelled, the official instead sending a messenger saying that “the protocol was not right”. What did it mean? I had great difficulty in explaining diplomatically that the man from the ministry would probably be in his fifties and would feel insulted at the prospect of having to negotiate with a mere youngster, who would be deemed to lack sufficient wisdom.

South East Asia and the Far East
Many of the general caveats relating to the Middle East also apply to South East Asia and the Far East, for example valuation of time, national pride and respect for age.

Local rivalries, nationalism, mistrust: Ethnic tension and strife have emerged in and between a number of countries. Westerners may get the blame for the cause of one group’s grievances against another. Indonesia is a contemporary example. Generally in the region, the appointment of local managers by foreign companies requires care to ensure that ethnic sensitivities are not trampled on. Hidden agendas and motives will be read into any significant decisions.

Attitudes to social and statutory regulation: Singapore stands out as a country that not only has strict laws but also enforces them. It is a society that values order and rules, whether these relate to statutory regulation or social status and conduct. Examples of where foreigners may unwittingly transgress including dropping litter or cigarette ends in public places, possession and use of chewing gum and failure to flush the toilet, all of which attract stiff fines.

The concept and practice of self-regulation, enshrined in such diverse UK regulation as the Health & Safety at Work etc Act 1974 and the risk management and corporate governance rules of the Stock Exchange Combined Code and the Turnbull Report, sit uneasily in this region. Although Singapore and Hong Kong are leading the way towards a more self-regulatory approach to risk management issues, generally in the region prescription is preferred to self-regulation. Even so, observance is often lax, as evidenced by the collapse of Barings Singapore.

General lessons
There are many risks for the unwary or ill-prepared foreign company seeking to do business in far flung territories. Typically, those companies that make long-term commitments to a territory tend to fare much better than those expecting a quick return. Foreign companies need a risk profile of the target territory to identify and analyse significant hazards and threats systematically.

In summary, you need to:

• obtain comprehensive, reliable information on a continuing basis
• select and maintain reliable, trustworthy and competent contacts, agents and partners
• make efforts to meet and understand the people
• learn something of the language
• adopt a culturally sensitive attitude
• carry out adequate risk profiling and assessments
• develop a long-term strategy regarding the territory
• draw up risk contingency plans.
  —
  Alan Waring heads risk management consultants Dr Alan Waring & Associates, www.awa.demon.co.uk . He bases this article on his personal experience in the Middle East and Asia, summarised in Managing Risk: Critical Issues for Survival and Success into the 2ist Century, Waring A E and Glendon AI (1998 reprinted 2000), International Thomson Business Press, London.

 

AIRMIC comments
“The skeleton of the cultural differences over risks shows up in the statistics for local, national and international groups. From these, we can see clearly that there are different risks and different degrees of the same risk in each culture. What is more difficult to do is to put flesh on the statistics and explain exactly why these differences exist.”
—
David Gamble, AIRMIC executive director

Potential risks in difficult territories
Security
Fraud, corruption, embezzlement, theft, kidnap, extortion, terrorism, personal safety, armed conflict

Investment/finance
Local laws, profit repatriation, taxation, economic performance, nationalisation

Commercial risks
Prices/controls, disposable incomes, growth, inflation, fuel prices, fashion/tastes, usance terms, contract law, contingent liabilities, foreign and local competitors, product profiles

Political risks
Instability, foreign trade policy, trade embargoes, diplomatic relations

Cultural risks
Characteristic social expectations, attitudes, behaviours, mores, taboos and imperatives

Health, safety & legal
Standards, product liability, employers liability, environmental hazards, health hazards, transport hazards

Product quality
Product liability, poor quality control standards and methods, failure locally to recognise quality requirements of global market