Wednesday 20 November 2013 7:56 pm

Management: Meet national culture

A new book argues that cultural values can make or break a corporate strategy AMERICA has long been seen as a graveyard for British retailers. In 2001, Marks & Spencer sold its Brooks Brothers US chain for a third of the price it paid for it. Sainsbury’s bailed out of its Shaw’s business in 2004. Tesco, now finalising the sale of Fresh & Easy, has written off a reported £1.8bn in its own failed US venture. What went wrong? For Fresh & Easy, it was partly poor timing. Launched in 2007, it was badly hit by the consumer downturn that followed the financial crisis. But as former Tesco chief executive Sir Terry Leahy wrote in his book Management in 10 Words, “Britons can easily delude themselves that life on the other side of ‘the pond’ is really not that different.” Therein lies the problem. What if, by pushing the small stores and ready-meals that served Tesco so well in the UK, Fresh & Easy’s ultimate failure was that it didn’t understand US culture? National culture can make or break your corporate strategy: this is the provocative thesis of Kai Hammerich and Richard D Lewis’s new book Fish Can’t See Water. Hammerich (a Danish headhunter) and Lewis (a British linguist) argue that many businesses are missing an elephant in the room. Most firms have a business culture underpinned by national values, they say. “An American company will be based on American values, think American and act American, just as a Japanese company will be Japanese at heart”. The problem is, they just don’t realise quite how American or Japanese they really are. CULTURAL CYCLES Clumsy cultural misunderstandings can certainly be a problem. When Walmart expanded into Germany in the 1990s, it insisted that some its employees speak only in English. American ways of dealing with customers also grated. German shoppers were greeted with the disagreeable sight of over-friendly staff asking them how their day was going. But beyond basic self-awareness, why should businesses care if their values have cultural underpinnings, perhaps instilled by a long-dead founder? Culture can be a source of a competitive advantage at certain stages in a company’s growth cycle, say the authors – if you know about it. Take South Korea’s Samsung Electronics. A focus on hierarchy and effective execution – influenced by its Korean values – gave it the rigour to produce quality products at low cost. But such values can be two-sided. While strict hierarchy suited Samsung when it was catching up with the competition, now that it’s the biggest electronics firm in the world, a culture that minimises dissent may also minimise the innovation required to stay on top. We might raise eyebrows at such broad-brush certainties (South Korea is as much the country of Gangnam Style as Samsung). But there are reasons to take the return of culture to management theory seriously. NEXT STAGE OF GLOBALISATION Hammerich and Lewis want to make companies better able to adapt to the challenges of globalisation. “The biggest obstacle to successful globalisation,” they say, “is the inability of most companies to understand the world view and aspirations of partners and competitors.” In short, globalisation makes culture more important, not less. They’re onto something. The benefits of globalisation are no longer just about picking the low-hanging fruits of cheap labour and natural resources (which arguably require little detailed understanding of alternative business practices). Now, companies like P&G, Diageo, Burberry are making money by selling directly to emerging middle classes. And while the world is flatter, as Thomas Friedman wrote in 2005, it is not yet horizontal in cultural terms. Business executives will obviously find it difficult to become experts in cultural quirks. For this purpose, Lewis has come up with a model, apportioning different countries’ cultures to a triangle of cultural types (see boxes). Linear-active cultures (like Germany, Switzerland and Luxembourg) tend to be highly-organised, with faith in rules and regulations. Multi-active cultures (like Argentina, Mexico, and Italy) find relationships more important in business than products. Admiration for strong bosses is combined with a certain flexibility. Finally, reactive cultures (like Vietnam, Japan and China) have “a psychological stance which penetrates the Asian mindset and intention.” This superficially appears in personal reserve, flexibility, and a desire to avoid conflict. Reactive cultures listen before they leap. WHAT DETERMINES CULTURE But there are reasons to be sceptical about identifying a factor as nebulous as culture as the most important element in business success or failure. First, cultures shift. Hammerich and Lewis draw conclusions about Britain (our class system holds us back, or our car industry is mostly lost) that are either contentious or out-of-date. Indeed, insofar as globalisation has unleashed creative destruction on culture itself, it has accelerated change in every country it has touched. Secondly, the authors are too certain about how national values influence firms. Giants like Samsung or Walmart may indeed encapsulate national characteristics via the dominant influence of their founders. But these effective national champions are not emblematic of the whole global economy today. What of the rising number of cross-border law firm mergers, for example? SJ Berwin combined with King & Wood Mallesons earlier this month to become an Asian-headquartered law firm, with significant branches in Australia and the UK. Which cultural group does it belong to? And what of differences in how the product of a culture (and, by implication, the culture itself) is perceived? The very German spirit Jaegermeister is seen as old-fashioned in its native country – associated with hunting lodges and the countryside. But it became drink of choice for London partygoers after its subversive adoption by a small group of cultural enablers, showing the porous boundary between what culture might be, and how it’s viewed. Finally, while we should credit Hammerich and Lewis with raising the profile of cultural dynamics in business, it’s unsatisfying to stop where they do. If culture can determine success, what determines culture – and is this not more important? Perhaps this wider socio-economic question is too big even for industry’s giants. Fish Can’t See Water: How National Culture can Make or Break Your Corporate Strategy, by Kai Hammerich and Richard D Lewis, is published by Wiley (£19.99). Germany and Switzerland: The Linear Actives Who are they? Richard D Lewis cites Germany, Switzerland, Luxembourg, the UK, the US, Sweden, Australia, and the Czech Republic as examples of linear-active cultures. What are their traits? With an emphasis on products, action and results, they are typically task-oriented, highly organised, and prefer direct and straightforward discussion based on reliable facts and figures. Linear-actives don’t fear confrontation, and love complex jargon. How does this play out in business? These traits extend into a concern to honour contracts, and an expectation that good products will make their own way. This leads to a failure to acknowledge that successful sales can depend on strong relationships, occasionally through non-official channels. What problems can this cause? When trading in places like the Middle East, Africa in the Far East, linear actives tend to see countries plagued by a lack of regulation, elastic ethics, and inefficiency, and struggle to understand how to apply their rules-based approach to different cultural situations. Vietnam and China: The Reactives Who are they? Richard D Lewis places Vietnam, China, Japan, South Korea, Thailand, Taiwan, Hong Kong, and Singapore in this category. What are their traits? Superficially reserved and more-inclined to listen than be proactive, Lewis argues that reactive cultures show their ability to adapt in the way they react differently to other cultures. The Japanese stress their punctuality, planning and calm while dealing with Germans, for example, but adopt a more flexible, people-oriented approach when dealing with Italians or Spanish. How does this play out in business? Lewis suggests that businesses influenced by this reactive culture are attracted to inter-company harmony (and minimise dissent), reject open confrontation, take an indirect approach to business relationships, and can be overly diplomatic. What problems does this cause? Reactive companies may not be pro-active in their business dealings, and will merely respond to their competitors’ actions. Italy and Mexico: The Multi-Actives Who are they? Richard D Lewis puts Brazil, Chile, Argentina, Mexico, Italy, and Sub-Saharan Africa into the category of multi-active cultures. What are their traits? They can be “loquacious and impulsive”, and lay great store by compassion and human warmth. Conversation is roundabout and animated, and those following these cultural traits have a tendency to do many things at the same time – making them poor followers of agendas. How does this play out in business? Relationships and connections are seen as more important than products, with the former paving the way for the latter. Further, relationships are stronger if they’re made face-to-face, and they also prefer to obtain information directly rather than from official sources. Less interested in schedules, delivery dates can be pushed back, and punctuality is infrequent. What problems does this cause? Lewis thinks the multi-active world is ultimately a human one, and reflects strong societal structures. They are unlikely to join the linear active world any time soon.