The power of difference

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In today’s business environment, collaboration between companies means collaborating across national and cultural boundaries. Supply chains, marketing and distribution systems, research partnerships and production joint ventures are formed between businesses in different countries and on different continents. And as more businesses operate multinationally, internal collaboration also requires the crossing of many borders.

However, the necessity of cross-border collaboration also poses many challenges and risks. All the difficulties of managing in the domestic market are magnified as managers struggle to cope with the expectations, desires and demands of people from different cultures.

In the 1980s, the management thinker Geert Hofstede coined the phrase “software of the mind” to refer to the different kinds of mental conditioning that people develop in different cultures. We may think the same about many things, he argued, but even small differences in perception and expectation can make collaboration difficult.

Managers attempting to set up cross-border collaboration agreements often find to their cost that the mindsets of their partners, rooted in national or regional culture, differ fundamentally from their own. “Culture is the personality of companies,” says Professor Jorge Vasconcellos e Sá of Lisbon Technical University. “Difference of opinion is a source of diversity, and, thus, of wealth. The problem arises when the disagreement arises about objectives – what is, and what is not, important. Then the alliance is not workable because the disagreement becomes permanent.”

In his book Strategy Moves, Prof Vasconcellos e Sá cites examples where cultural differences caused collaborations to fail. An alliance between the US pharmaceutical company Upjohn and the Swedish business Pharmacia ran into trouble when it became apparent that the cultures of the two parties were not compatible. The Americans could not understand why the Swedes went on holiday for the entire month of August; the Swedes could not understand why the Americans banned alcohol at lunch. These small disagreements escalated into more serious ones. The gradualist style of management practised by the Swedes, which favoured consensus, clashed with the US style, which favoured decisive action and focused on results.

Such differences might have been expected between companies located on different continents, but one does not have to travel very far to run into cultural problems. In the late 1990s, negotiations between the Swedish telecoms company TeliaSonera and its Norwegian counterpart, Telenor, broke down without reaching agreement, after cultural differences and differences in expectations and values led to angry verbal exchanges. The two parties began to distrust each other, and the negotiations were abandoned. “In negotiations where the parties represent different cultures, the risk of insults, misunderstandings and mutual distrust grows,” argue the consultants Keld Jensen and Iwar Uwt, who observed this breakdown. “The negotiators have to learn to be aware of and able to handle the cultural differences which manifest themselves.”

There are other problems, too. Foreign exchange risk has to be factored into the collaboration equation. As long ago as 1989, Peter Drucker reminded us that every business needs to learn how to manage its foreign exchange exposure. “Foreign exchange fluctuations have become an ordinary cost of doing business,” he wrote.

Physical distance between partners means that there is a greater risk that the lines of communication could break down. When that happens, companies become vulnerable to exploitation by unscrupulous partners.

Differences in legal and regulatory regimes can also create barriers. Some countries, for example, actively discourage cross-border collaboration and prefer to control economic activity within their own borders.

The World Trade Organization has broken down many of these protectionist barriers, but some still exist. It remains a fact that companies based in countries like Singapore, which have made cross-border collaboration a priority and learned the skills of doing it, are better placed to collaborate internationally.

The management thinker Kenichi Ohmae, in his book The Next Global Stage, praises Singapore for its policies. Openness to the outside world, he says, is a key survival skill in the 21st century for companies, businesses and individuals alike.

How can these problems be overcome? Most observers emphasise the need for any cross-border collaboration to be part of a sound and well-thought out overall strategy. “Cross-border collaboration has to be done in the overall context of each company’s global strategy,” says George Yip, vicepresident and director of research and innovation at Capgemini, the consultancy.

Prof Vasconcellos e Sá agrees: “There are no good alliances unless they help implement a sound strategy.”

It is also important that there is strategic convergence between the partners. In Mr Yip’s view, this does not mean that all parties necessarily need to have the same strategy, but their strategies do need to be compatible. “At the least, the partners need to be able to agree on a joint strategy for collaborative entry,” he says. “Otherwise we get the infamous situation of joint venture partners in China ‘sleeping in the same bed but dreaming different dreams.’”

Cultural differences have to be managed carefully. This requires sensitivity, tolerance and understanding on both sides. In the case of Pharmacia and Upjohn noted above, all three were lacking; neither party could understand the other, and neither seems to have made much attempt to try. Of course, tolerance and understanding are required for any successful collaboration, but when working with partners from different cultures speaking different languages, they are even more essential.

Trust and understanding are very important. Messrs Jensen and Uwt argue that “if personal chemistry is lacking between the involved negotiators and future partners, then it is virtually impossible to reach a co-operation agreement which will work in the long term”.

The key to collaborating across borders is to ensure that there is good will on all sides; if this is present, then many other problems can be solved.

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