When companies decide on their overseas outsourcing strategy and service providers, due diligence and risk assessment are a normal part of the process. However, “soft” issues like culture often get neglected in favour of “hard” organisational, financial and legal risk factors.
“This is despite the fact that major consulting firms have identified cultural differences as the biggest reason for outsourcing projects to fail,” says Dr Christiane Prange, professor of international strategy at EMLYON Business School in France.
UNESCO defines “culture” as a set of distinctive spiritual, material, intellectual and emotional features of a society. “A kind of mental software by which people operate,” says Professor Prange.
These features vary widely across the globe. Some cultures are egalitarian; others are hierarchical. Some perceive time as elastic; others extol punctuality as the highest virtue. Some “tell it like it is”; others tend towards diplomacy and avoid confrontation.
A formal evaluation of cultural fit should be part of the due diligence process, rather than an afterthought
Such differences influence every area of cross-border business relationships, systems and processes. Occasionally, something gets lost in translation and both sides laugh at the resulting faux pas over virtual coffee. At other times, cultural misalignment means loss of money or even a complete breakdown of the business partnership.
A formal evaluation of cultural fit should be part of the due diligence process, rather than an afterthought. “If you find your values are different the day after you’ve signed a deal, then it’s quite hard to rectify this without a lot of investment and effort,” says Dominic Dryden, head of sourcing at international law firm Olswang. But give yourself time to get the fit right. “Long-term relationships need to live and breathe,” says Mr Dryden.
Foreign culture is rarely seen as an opportunity for synergy. “But you can use diversity in a very positive way to enhance innovation and creativity,” he insists. “You can also use it to navigate conflict, rather than perceive it as a source of conflict itself.”
The responsibility for sorting out cultural alignment does not lie solely with the outsourcer, either. “Both sides need to understand and adapt to the cultural differences,” says Punit Bhatia, management consultant at consultants Deloitte.
They can gain from each other, too. For example, the British way of saying something negative in a positive way can be very useful in meetings the world over. You are unlikely to leave even the most sensitive party feeling dejected when, in response to their proposal, you say: “Hmm, that’s an interesting idea…”
When negotiating in Brazil, expect a great deal of time to be spent reviewing details. Use local lawyers and accountants for negotiations; Brazilians resent an outside legal presence. Also, they negotiate with people not companies, so do not change your negotiating team or you may have to start again.
Chinese guanxi is a connection two people have built over time, through mutual exchange of favours. If you have guanxi with another, you will do almost anything for them. “You don’t have to take a bullet for them, but it could be something genuinely inconvenient,” says Andrew Halper, China business consultant at lawyers Olswang.
If you need legal representation in Japan, bear in mind that only bengoshi – Japanese-qualified lawyers – can represent clients in proceedings in Japanese courts or government agencies. Foreign lawyers, who are licensed to practise in Japan, can usually only provide legal advice about their home country.
For Filipinos, status matters. “In an outsourcing centre, the manager’s status is often measured by the number of people who work for them,” says Shamus Rae, head of outsourcing at KPMG management consulting. They won’t want to identify new working practices that could reduce the ranks of subordinates below them.
Have you signed a contract with a Polish partner that has gone wrong? According to the World Bank Doing Business 2013 report, it takes 685 days to enforce a contract in Poland, from filing the lawsuit until the judgment is enforced. Poland ranks 56 out of 185 countries surveyed.
The Russians are proud about being Russian and lack a sense of humour when Mother Russia pops up in a conversation. “If you see a Russian struggling with a pen when signing a contract, don’t joke that Russian pens never work, or they’ll be deeply offended,” says Ignaty Dyakov from consultancy Russia Local.
Is your Saudi partner green, yellow or red? In a bid to limit the number of expats working in the Saudi Arabia, the government is now proposing that all private sector companies be colour coded, with green companies employing the highest number of Saudis and red ones having a long way to go to reach their quota.
Your Spanish outsourcing partner may have an unusual employment benefits structure. “There is still a tendency to offer subsidised housing and consumer goods,” says Rachel Mantell, of consultants Deloitte. Where northern Europeans would find it very odd to buy fridges and dishwashers through their employer, it’s pretty common in Spain.”