When it comes to doing business overseas, language differences, local business cultures and regional regulations present unique barriers to businesses that can be difficult to overcome.
Differences in cultures can be subtle and hard to anticipate. Regional distinctions and even local history can have an impact on the way business differs in one country as compared to its neighbor that an outsider may not expect.
With some preparation and an open mind, however, these differences are surmountable.
The culture of business
“The cultural element is the one that gets missed all of the time,” noted the CFO of a global manufacturer of military-grade expeditionary, aerospace and medical products. “I’ve seen more international expansion failures from a lack of paying attention to that.”
For companies conducting business across international borders, regulations, import tariffs and duties can make entering an overseas market difficult. Increased scrutiny by local governments seeking to prevent illegal practices can add to the challenge.
But entering a foreign market is not just about government compliance, says a director of another global manufacturer. “The way that business is done in one European country might be very different from the way business is done in Japan or India.”
It helps to have a local guide who can translate for a country’s language as well as its customs, sales processes and business methods. Approaching the sale of a product in another country by using the same approach taken in a company's home country, can be a recipe for trouble. At best, a lack of understanding can lead to miscommunications and mistakes. (There are any number of anecdotes in advertising where taglines written in one country didn’t translate well when they crossed borders.) At worst, companies without experienced guides to foreign markets may fall out of compliance with local regulations and, in some cases, they can be barred from doing business in that country.
The challenges and reforms in labor laws
Labor laws vary significantly around the globe, and often are more protective of local workers. Historically, salaried positions in France, for example, were highly protected, making the dismissal of employees without cause a costly and complex process. These social protections made employers apprehensive about adding salaried employees. Recently, reforms known as the Macron Ordinances were implemented to develop a more dynamic French labor market, one that is able to compete in a rapidly evolving global economy. One of the most significant changes brought on by the reforms gives employers greater flexibility to hire and dismiss employees. Not all countries have made such changes, and worker protections are still a priority in many jurisdictions.
As a company’s employment footprint crosses borders, however, its employment-related tax challenges grow exponentially. Many employers who expand abroad fail to fully understand their obligations and total employment costs until it is too late. Social taxes, the possible ramifications of tax equalization agreements, how employees can affect permanent establishment status and a host of other issues must be understood and addressed in order to manage the tax exposure of the company and its employees.
Lines of communication
“Sometimes the approach to making decisions is different,” says one senior vice president for a manufacturer of audio products. These differences can manifest themselves in many ways, such as the time it takes to reach a decision.
It may also be seen in the way a business professional will accept or turn down an offer that is culturally acceptable. A direct “no” in Japan, for example, can be considered rude. But in Italy, a “no” can mean “We’re going to get that done.”
Because English has become the universal business language, native English speakers may not fully appreciate the dynamics of translating the language. It cannot be assumed, for example, that a nod of the head from an overseas partner is signaling agreement. It could simply be a polite way of staying engaged in the conversation while translating and examining what is being said. Certain English words also may have different meanings for overseas counterparts. “You have to be attentive,” notes one executive, “and find acceptable ways to explore what they understood and whether you’re really on the same page.”
One popular approach to addressing the cultural divide is to conduct company meetings in overseas locations rather than at a company's home country. This can not only boost participation, it can provide a comfortable atmosphere where employees can have face-to-face meetings with their foreign colleagues as well as provide a chance to learn more about local customs and culture. Both sides can gain levels of understanding that cannot be obtained from communicating through conference calls.
These meetings can also go a long way toward showing an overseas company that its partner is interested in establishing a professional relationship with them that goes beyond a single business arrangement.
For the professional working with foreign companies, understanding an overseas business environment requires an effort by business leaders to get out of their spreadsheets and encounter new cultures firsthand.