Ten years ago, Frances Cairncross coined the phrase “the death of distance”. Her basic thesis – that technological advances had reduced the importance of geography in business – has proved spot-on. A global customer base was once the preserve of a few corporates; now, thousands of businesses have customers, suppliers and partners around the world.
But if it is now easier than ever to do business with a partner thousands of miles away, then there are other, more intangible differences that are harder to tame. Language, politics and culture remain barriers that cannot be overcome by an internet connection.
One major recent trend is the growing links between first world businesses with suppliers and partners in emerging markets. Led by the so-called Brics – Brazil, Russia, India and China – western companies are looking to access these new markets.
But according to research published by Datamonitor, the research group, western businesses are unprepared to deal with these rapidly growing markets. The study interviewed 800 senior executives in the US, UK, France and Germany. It found that while 61 per cent of the respondents admit it is “crucial” for their businesses to work with these countries, many do not have a clear understanding of the cultural differences. For example, 88 per cent of western directors could not name the currency of Brazil and 14 per cent thought that vodka was the main product of Russia.
To achieve successful collaborations, European businesses need to recognise that emerging markets may have longstanding traditions that can be at odds with the way of doing business in the developed world. Ian Gadsby, managing director of Biogas, has experience of such issues. His company, whose core business is controlling gas emissions from landfill sites on behalf of waste management companies, also creates carbon credits for western companies by destroying methane emissions in emerging markets,
Each time the company deals with a new country, says Mr Gadsby, it needs to adapt. In Mexico, it has had to manoeuvre around the political situation. The firm has to deal with local municipalities, but the mayoral term of office is only three years. “You don’t get anything done in the middle of that term, because they’re not doing anything” he says. “At the beginning they’re pretty good, and at the end they’re trying to leave a legacy for themselves, so timing is essential. We’ve been in projects where we’ve had to wait for the right political moment to get something signed, and it might have taken two years.”
Although China is now one of the biggest emerging markets, its idiosyncrasies can pose traps for the unwary. Pierre Yves, strategy director of Capgemini, says a major difficulty is that the 160 largest companies are still owned by the state, and their business is overseen by the Supervision and Administration Commission of the State Council (SASAC). “There is very formal protocol,” he explains. “As soon as you deal with the very large enterprises in domestic China, you should not be surprised to have the Communist Party representative as the highest-ranking person present when you’re doing private business. The SASAC representative is very high as well, and then [below that] you have the persons you are dealing with.”
The great success story of recent years has been India. It has also proved one of the easiest, in cultural terms, to deal with. “The key thing in India is that during the days of the British Raj the education system was set up in English, and the judicial system is modelled on the British system,” says Sanjiv Gossain, UK managing director of global outsourcer Cognizant.
Add to that the fact that many Indians attend business schools in the US and return to India, and you have a country with a very good understanding of global business practices.
The principle of shared language ought to apply to Spanish companies doing business in South American countries, or French companies doing business in north Africa. Yet the effect is less significant than might be expected. US businesses wanting to provide a better service to their Hispanic-American customers are outsourcing to Mexico, and to a lesser extent Chile and Argentina, according to a 2006 Datamonitor report – but those countries are not widely used as an offshore location for Spanish businesses. Spain itself is a low-cost country with high unemployment, so the need to save money is arguably less of an imperative.
Some French firms have located their customer call centres in French-speaking areas of the world, such as Tunisia and Morocco: Morocco is used, for example, by France Télécom and the rail company SNCF. But the trend is mainly confined to customer call centres, where it is necessary to talk to customers in their own language, says Jeffrey Mann, vice-president of research at the analyst firm Gartner.
In business, English is so much the dominant language that the incentive of being able to do business in one’s own native language is overridden by considerations of cost, opportunity and the availability of skills. “If you look at the emerging countries that are successful, they have easier import rules, fewer restrictions on foreign entity activity, and it’s easier to establish a company. In China you can set an entity up very quickly. Try doing it in Brazil and it will take you six months to a year,” says Mr Gadsby.
Yet European companies can still get it wrong. “The traditional mistake is patronising them, which they have been suffering from for decades,” says Mr Yves, talking of both China and India. “But right now it is absolutely clear in their minds that they have better performing economies in both countries.”
But how do you achieve trust when you are dealing with an unfamiliar culture? Businesses need to be sensitive to cultural differences and accept that it takes time to adapt. Cognizant runs cross-cultural workshops to educate its staff about the countries with which they will be working. It also has what it calls a “two in a box” policy: the European or American outsourcing customer will have both a local Cognizant manager to deal with as well as an offshore one, minimising the difficulties of working with a different country.
Technology is also an enabler, says Mr Mann, who points out that some developing countries have leapfrogged the west by widely adopting communications tools such as Skype. But technology has to be used intelligently. “In many countries people are more comfortable writing English than they are speaking it,” he adds. This means that e-mails are often preferable to phone calls. But the western method of brusque, to-the-point e-mails or instant messages can also cause problems. Staff at Biogas have had to become more tactful in their wording of e-mails, after finding that a straightforward instruction can be interpreted as heavy-handed by employees reading it in Mexico.
At Cognizant, a number of different technologies are used to communicate internally and externally. Using a webcam and Microsoft’s Live Communications server, Mr Gossain is able to see which of his colleagues in other countries are online and initiate an instant videoconference with them. Senior executives use blogs and wikis to communicate with staff and customers in other countries. The variety of tools available makes it much easier to simulate a face-to-face conversation and to reduce the possibilities of misunderstanding.
The world is changing at an extraordinary pace, however, and companies in the leading emerging markets are adapting very quickly to the requirements of global business. Mr Yves cites a senior SASAC executive who recently engaged him in a lively discussion about the relative merits of the General Electric and Goldman Sachs approaches to business.
The notable common feature of modern global businesses is not that they are headquartered in one country and do business in another, but that the lines are increasingly blurred: a UK employee of a French firm such as Capgemini could easily find himself working in India, and vice-versa. While this may ultimately make for smoother business relationships, it requires sophisticated collaborative skills. As Mr Gossain points out, a typical financial services company now has to handle outsourcing relationships across the world. “The organisation of tomorrow is going to be unbundled,” he says. “The unbundled corporation requires a lot of splitting up of work across multiple companies and countries, so collaboration is going to be core.”
