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Culture club

Investigate the local scene before going international

Professor Hector Lozada‑Vega, fellow of Seton Hall University’s Institute for International Business in the Stillman School of Business. - AARON HOUSTON

Lozada‑Vega – AARON HOUSTON

When a U.S.-based food chain introduced a product to an overseas Spanish-language market, it picked a snappy, easy-to-remember name. But the company didn’t realize that the label also had a close similarity to a suggestive phrase in Spanish slang, recalled Hector Lozada, an associate professor at Seton Hall University and fellow of the Institute for International Business in the department of marketing at its Stillman School of Business.

“A name may be inconsequential in standard Spanish, but there are many slang variations,” he cautioned. “So, businesses have to be very careful about researching a name before they adopt it.” That’s just one example of why it’s important for companies – small- and medium-sized ones in particular, that tend to have limited resources – to learn about the culture of other countries before trying to expand internationally, academics and other experts told NJBIZ.

From small details like learning the right way to introduce yourself to a potential business partner – which can speed or delay snaring a deal – to big ones like whether or not paying a fee to speed a licensing process violates the Foreign Corrupt Practices Act – possibly incurring criminal penalties – there are a host of issues to investigate.

No laughing matter

One CPA shared a war story about a wholesaler that expanded into Southeast Asia with a captive manufacturing arm. The U.S. parent expected to get a monthly report reflecting profit and loss, on-hand cash and other information, said Adam Lipkin, a member of the CPA and consulting firm SobelCo.

“That’s standard procedure in the U.S., where a P&L and balance sheet can be closed out in a matter of days,” he said. “But the Southeast Asia partners laughed when they heard about our client’s timetable, because over there it can take 60 days to close out the books.”

Having “feet on the ground” can help a company to get a clear picture of local conditions, he added. “Before a U.S. company, of any size, engages in overseas operations, it’s very important the management team spend some time in the overseas host country to get a feel for the local customs. If you’re from the New York City metro area, for example, there’s a good chance you’ve got an ‘in your face attitude’ that wouldn’t go over well in a country like Japan.”

Sometimes, though, going with the flow of local customs can present some troubling choices. That’s especially true when it comes to making payments to officials to get things done. In September, for example, the Securities and Exchange Commission announced that Sridhar Thiruvengadam, the former chief operating officer of Teaneck-based Cognizant Technology Solutions Corp., agreed to settle charges that he violated the Foreign Corrupt Practices Act by participating in a scheme to bribe an Indian government official.

Since 1977, the FCPA has made it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. According to the SEC, after a senior government official from the Indian state of Tamil Nadu demanded $2 million, four Cognizant executives, including Thiruvengadam, met by videoconference to authorize the payment and devise a scheme to cover it up in the company’s books.

Joy Schneer, professor of management, Rider University.

Schneer

The lines aren’t always so clear-cut, however, noted Joy Schneer, a professor of management at Rider University. “Making a payment to an official to get things done faster isn’t always illegal,” she said. “Look at the U.S., where you can expedite the application for a passport by paying a $60 fee.”

Schneer recalled speaking with a British woman who was setting up a marketing agency in the Czech Republic, about the time the nation was first opening up to the West. “She needed to obtain a license and was informed she’d have to pay $75 to expedite the process,” Schneer said. “The woman was concerned that might violate British law [the UK Bribery Act], so she declined. It ended up taking 18 months to approve the license. Would it have really been a bribe, or was the payment similar to the U.S. expediting fee for a passport? It can be a tough call.”

A guide to corruption

An organization called Transparency International publishes a corruption index each year ranking 180 countries and territories on a scale of one to 100, with one being very corrupt, said Denis Hamilton, an assistant professor of professional practice at Rutgers Business School. “Based on the scores reported in that index, the most corrupt countries as of 2018 are in Africa or the Middle East — eight of the top 10 — and include countries such as Somalia, Syria, South Sudan, and Yemen,” he said. “I would consider it considerably risky to do business in any of these countries not only because of the corruption but from a personal safety standpoint as well. At the same time, not all countries in this region have poor scores in this index so it would not be appropriate to assume that doing business in that region altogether would be unwise.”

Hamilton – who previously served as a vice president at Johnson & Johnson’s corporate headquarters – doesn’t personally have direct experience doing business in any of these high-risk countries, but he had some advice about staying on the right side of the Foreign Corrupt Practices Act, which generally bars bribery. “Depending on the type of products, it may be possible to engage a regional distributor who works with local agencies in more-corrupt countries — thus insulating the American business from having to conduct direct business activities within higher risk locations,” he said. “From my personal experience at J&J, I am aware of a specific situation where, due to pressure from corrupt factors within a country, J&J made the decision to exit that country and discontinue operations rather than to be coerced into unethical and potentially illegal activities.”

His advice to other businesses faced with similar pressures: “It is just not worth the risks and there are many other countries to consider.”

Let’s get personal

Some cultural differences can get downright personal. Associate Professor Mingwei Liu, co-director of the Center for Global Work and Employment at the Rutgers School of Management and Labor Relations, noted that one such issue between China and the United States is “power distance.”

Mingwei Liu, Rutgers University School of Management and Labor Relations, Piscataway, NJ. 10/19/2016 Photo by Steve Hockstein/HarvardStudio.com

Liu – STEVE HOCKSTEIN/ HARVARDSTUDIO.COM

“In China, senior people or high-ranked government officials should be respected,” he said. “If they stand, you should also stand rather than sitting. During meals, the most senior or highest ranked hosts typically walk to the tables of guests and make toasts. As a guest, you should stand up rather than sitting there. And when toasting, the position of your glass of wine should be lower than that of another person who is more senior or more highly ranked.”

Time management is another issue. In the U.S., most people are aware of time and tend to value being prompt, Schneer said. “We’re a monochronic society,” she said. “We tend to do things quickly. If you ask someone, ‘How’s the family,’ you expect them to just say, ‘great,” but in some societies you’ll get a complete rundown.”

Schneer, who runs academic conferences in different countries, said the approach to scheduling can come as a shock. “In Latin America and some Middle Eastern nations, people tend to be polychronic, and they take a much more relaxed view of time,” she added. “I was in Spain and having lunch with a colleague who was running an executive MBA class, and I noticed that he was scheduled to start in a few minutes. So, I gently remarked on the time, but he said not to worry. We finally got to the class about 45 minutes after the scheduled start, and to my surprise most of the participants had just started to trickle in.”
In fact, starting from “hello,” business matters are often handled differently, she noted. “In the U.S. we shake hands when we meet someone, but in some cultures, you hug the other person,” Schneer explained. “Or you may kiss them on the cheek. But which cheek do you start with, and how many times do you kiss them? It can vary from culture to culture.”

These and other kinds of differences are beginning to narrow, however. “We’re seeing some impact from social and other media already,” she said. “Youth in all countries all watch the same videos and play the same interactive games. Because people’s expectations are greatly influenced by the media they’re exposed to at a young age, these will have a big impact. Just look at the way American fast food has infiltrated nations around the world — kids gravitate to them.”

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