Cultural Insights on Expansion into Emerging Markets

We can only learn the new from the known, so any insights applied to a respective field or discipline requires awareness in understanding that this knowledge and creativity is contextual. That relativity of understanding is fundamentally perspective, which manifests itself as cultural limitations in conditions when transferring ideas.

So, can creative processes within organisations be constrained by cultural blinders?

Take for example, the development of the drug coumadin, also known as warfarin by Karl P. Link in the 1930s. In his book Diversity & Complexity: Primers in Complex Systems, Scott Page explains how the application of the drug, from an agricultural researcher’s lens was used to kill pests. Only decades after, due to the limitations of specialised knowledge, were the possibilities of thinning human blood and reducing blood clotting using the same drug discovered.

Applying that same logic of cultural perspective, I will identify, then discuss some of the constraints, impacts and benefits of cultural awareness from an organisation’s perspective when investing in emerging markets.

The Limits of Culture

The subject of culture is vast and also complicated. It effects the behaviour of a consumer, thereby influencing their drive to purchase. To help understand the points to follow in this article, it is necessary to build a framework of principles on the capabilities of cultural intelligence. The below cultural underpinnings serve to offer contextual knowledge:

Diversity

Diversity drives innovation and productivity, and this can be observed through variation in attributes, experimentation, and recombination, which is a crossover of different existing characteristics (Page, 2011). The level of diversity in a respective area is determined by selective pressures, which are effectively learned behaviours. This approach can be implemented during creative processes to aid in designing a new product or service offering.

To understand the limitations of diversity, it is crucial to know the question the business is trying to answer. In a complex system such as an organisation, to help determine the goal and scope to meet that business’ needs (the question being answered) requires considering a set of dimensions:

o Relative demand — the level of demand that effects the potential diversity

o Interdependence — the connections of entities within a system work both as a constraint (depending on the conditions required to coordinate) and a catalyst.

o Variation of selection — selective pressures are restricting factors that influence change, so the less variation of selection, the less diversity

o Functionality — the rate of diversity is driven by the functionality of the entity. The weakness of that particular entity tends to correlate with the extent of complexity

o Adaptation — the determinants of the rate of adaptation are influenced by the ability of entities to explore new functional opportunities

Decision making

When a business seeks to expand growth into emerging markets (such as Asia, Africa or Latin America) it is imperative to understand the behaviours of the local market when developing strategies. Procter & Gambleserves as a good example of observing local consumers to understand their wants and needs, as they learnt to improve their customer experience by visiting consumers where they lived and shopped. The expected approach for decision-making is intuitively ethnocentric. The level of awareness and strategies of managing the different methods of dealing with intercultural scenarios is essential, to help avoid cross-cultural challenges. As a leader working in a diverse team, this helps to understand whether the organisation requires a top-down style (which can be observed in the American culture) as opposed to consensual, or like the Japanese a holistic approach (macro-micro). It also provides knowledge of elements such as the power-distance dimension, which highlights whether one culture values equality and shared decision making, or if there is a chain of command to be followed.

Moreover, a leader requires a general awareness of a society’s basic cultural systems, as these are fundamental to the order and structure of that group. I’ll briefly mention some of them below:

o Economy — comparison of a capitalist state to a socialist state, highlights the key differentiator that one system is competitive in nature, whilst the other promotes cooperation and equality. This can prove key when considering human resources policies (such as employee entitlements), or negotiations in the instance of socialist nations where government has an influence on distribution of goods and services

o Education — the approaches to educational structures differ from formal to informal, applications-based to principles-based. The western culture promotes a rote style of learning, which is seen in the Asian culture as limiting. Such considerations can prove essential when designing training and development programs for employees

o Religion — the understanding of how religion affects management or operational decisions is key to realising related impacts, for example, how most Islamic banks are prohibited from charging interest on loans because financial gains at the expense of the poor are viewed as exploitive

o Law and Politics — governance of societies can be interpreted as formal (constitutional) or informal (conventional knowledge). Constitutionally, a government such as Australia’s has common law governing the country, with individual states observing their own constitution. From an informal perspective, a society such as Saudi Arabia has prescribed expectations of how citizens or visitors should behave. These dogmatic laws are part of what is known as a tight culture.

Negotiating

A crucial skill as a global leader is the ability of negotiating. When exploring in emerging markets, it is difficult to ignore the cultural perspective motivating the parties involved, whether it be religion, philosophy or educational assumptions. While there is a need for the involved parties to reach an agreement mutually satisfying their respective interests, culture then adds another degree of complexity. Depending on the communication style, an individual from an indirect culture can perceive a direct communicator as aggressive, whilst the direct communicator interprets their counterpart’s behaviour as passive and introverted. Also, in order for discussions to be effective requires a mutual understanding of the preferred method of evaluation, whether it be applications-first (inductive reasoning) or principles-first (deductive reasoning). The Asian culture uses a holistic approach, as they account for each individual entity within the whole, so as to understand the interdependencies of the various elements. As such, this shows that there is no universal approach when conducting negotiations on a global scale.

Risk Aptitude

Another cultural dimension to consider is uncertainty avoidance. When undertaking a project, some form of risk analysis has to be performed. To understand the capacity for one individual to accept a certain level of risk requires awareness of the extent to which one is comfortable with unpredictability and ambiguity. Due to high uncertainty avoidance your Arabic counterpart may require explicit instructions or more formalised procedures and policies. When observing individuals from an Anglo, Nordic or Eastern European region, they operate on a more flexible and adaptive model.

The Impacts and Benefits

Globalisation has seen demand of products and services driven by selective pressures of the Western culture, but research indicates how Asia’s socio-economic growth will, and in some cases has overtaken as a centre of consumerism, becoming the Dominant Culture of Influence® (DCI). With developed markets saturated, the emerging markets — notably China, India, South-East Asia and Africa are opportunities of growth and investment. To provide perspective into the effects of cultural awareness will require thematic observations of the business world.

1. We have noted how a key attribute to being an effective leader is the ability to negotiate. In an intercultural context that trait becomes more complex, as you have to consider several dimensions such as language barrier, the ability to handle confrontation, or the “appropriate” method of approach. When China was deliberating on the prohibition of direct selling due to the unethical practices by illegitimate sellers, this threatened to ruin Amway’s operations. Eva Cheng’s critical analysis of the potential issues with the expected regulatory change drove the decision to cooperate with the Chinese government. This response drew on her cultural learnings of collectivism, patience and endurance, to be able to understand that the government prioritises the interests of its consumers

2. A Multi-National Corporation (MNC) that has demonstrated the viability of local knowledge and networks to decision-making when exploring or exploiting an emerging market segment is Suzlon Energy. This enabled the company to identify profitable opportunities. To understand the complex problem presented by increased demand of wind energy in India, they tapped into the local market and decided to help businesses attain wind farm permits, to deliver and maintain the farms, and sell the power. By bundling these services, the company has been able to identify a profitable revenue stream, in some cases even higher than profits from turbines

3. When considering sustainable business models, research from the Transparency International studyhas shown how some MNCs lack corporate social responsibilities. The purpose of this study was to evaluate the anti-corruption programmes, disclosure of key financial information, structures and holdings of 100 companies based in emerging markets. The results revealed how 75% of that total had a rating of less than five out of ten, with 72 of the companies not disclosing any tax information. This is a clear indication of how these companies lack any intentions of fair practices, worsening the state of poverty, corruption and inequality within these countries. Since the inception of multi-national corporations, we have seen the leaking of the Panama Papers, or the account of such authors/journalists as Nicholas Shaxson on illicit offshore activities, to prove the negligence and misconduct of these global giants. Offshore tax havens incite the illicit flow of funds in between countries, but as such the Tax Justice Network is working to implement tax reforms, appeal for reparations, and provide visibility by ranking jurisdictions on their practices in offshore financial activities. Such practices affect the global brand of these companies, as well as corrupting the sentiment the local market holds

4. A consumer’s needs and wants become more nuanced when distributing products across borders due to cultural influences. Product development requires variation in order to successfully enter an emerging market, and this can be realised through cognitive diversity. Allowing for different streams of thought and ideas creates perspective, which in turn creates opportunities to improve product offerings. An insurer considering entering an emerging market can benefit from understanding how migrants in developed countries send money home to take care of their families and loved ones. This presents an opportunity for an insurer to protect these families through providing a product structured as an annuity. A migrant can invest money into one of these annuities, with an assurance that their families and loved ones back home receive a secure payment, and continued compensation even in the event of death

5. When Wal-Mart acquired stores in Germany, their lack of cultural sensitivity and awareness brought failure to their discount chain operations. The retail giant failed to research and understand the labour laws in Germany — how companies and unions are closely aligned — and their approach to customer service unsettled some of the shoppers. Subtleties such as using local management were not adhered to, so not only did the American executives not understand the local customer, but their low prices were also seen as predatory, causing regulators to intervene and impose sanctions

So how do organisations become more effective in intercultural conditions?

MNCs trying to break into emerging markets will require adaption and innovation to compensate for the competitive advantage local competition holds. Whether its establishing partnerships with local entitles to develop consumer awareness, these companies will need a framework with initiatives based on cultural intelligence (CQ), that promotes understanding of similarities and differences between cultures, to then allow for strategies designed to equip leadership for intercultural situations.

All the above real-world cases, cultural dimensions and concepts serve as guidelines to better interpret intercultural scenarios; however, it is important to understand that this does not dismiss the personal values and beliefs of an individual.