Expansion Strategy Phase: Business Culture

Lost in Translation: How Culture Can Impact Your Business Expansion

This article is part 6 of a 17-part series on global expansion. You can find the full list below this article.

“I’m exhausted,” he said, shrugging his shoulders and taking a swig of his beer. 

He had been in Japan for about 2 years looking to expand his multilevel marketing company in the electricity industry. Japan had deregulated the sale of electricity which made it the perfect opportunity to take what he built in the United States and build an even bigger business in Japan. 

But little did he know, the process for winning new clients in Japan would require a lot of wining and dining. Lots, late into the night. And while that might sound like fun on the surface, he hadn’t expected that he’d be going out every night for two years straight, especially after doing a national tour to meet with various business leaders. In Japan, long dinners and lots of drinking, late into the night, is often a big part of business culture. Something that he was not used to in the US.

Eventually, the company folded and he went back home. 

Entering a new market is exciting; you think of all of the possibilities, the potential revenue, the esteem that comes with having a strong international business presence, and everything else that comes with this success. 

But one thing we see companies overlook is culture

When companies are creating their north star goals, we notice that their expectations tend to be based on the experiences and success they have had in their home market. So when that company enters a new market, they go in with the notion that business should operate and respond in the same way. 

But that’s not always the case. Here are some insights about culture and three ways that culture can impact the success of your business: 

What exactly is “culture”?

When you think of the word “culture”, you might think of things like food, festivals, music, dance, or any other tangible thing you can experience when visiting a country. 

But we like to define culture as this: a set of values shared by a group of people that influences their behavior

These three key words – values, group, and behavior – are important because they highlight that culture isn’t necessarily about how an individual thinks, but about how individuals are likely to act collectively in certain circumstances. In order to analyze culture, there are a set of cultural dimensions that help with comparing and contrasting various cultures against topics including communication styles, leadership, decision making, risk aversion, and individualistic vs collectivist values.

In most cases when you visit a country, you can observe how people behave in a group, but what you might not understand clearly until you learn about the culture is their underlying value system that impacts those behaviors.

When you start with a key value, you can see actions across different elements of lifestyle. For example, in Japan, people value “cleanliness”. You can see “cleanliness” play out in that people take off their shoes before entering homes and some establishments, they receive hand towels at restaurants, people clean up after themselves at picnics and venues, children clean their classrooms and don’t rely on janitors, fans clean up the stadium after a sporting event, and employees even brush their teeth after lunch at the office for personal hygiene. 

What all of this means for you as you’re looking to expand your business abroad is that the values people have in a culture could affect how they value your product. It could also mean that culture has an impact on customs and infrastructure which may pose obstacles to your timeline and distribution. 

The 3 ways culture can impact your business

While there are numerous things that culture can impact, here are the top three that we have come across when seeing businesses expand abroad:

  1. The demand for your product

One example we shared in our ambition article was of a US company that sells mid to premium grade tools. At first, they entered the Brazil market only to discover over time that they were losing money; the prices weren’t high enough to make up for distribution costs, and the local culture didn’t have as strong of an appreciation for the quality of their products. When they started to look into other jurisdictions based on culture, they discovered that Europe had a market in which people culturally value mid to high grade tools. It made sense for them to enter the market where they knew that people had the same value system around their products. 

Even if there is a demand for your product, one other thing you might need to consider is whether or not the culture has nationalistic viewpoints. Some cultures may prefer local brands and products over foreign ones, regardless of the quality. Take, for example, India which made a point to build automotives themselves (even though the quality was unsafe), or a country like Korea which can have a strong dedication to national products depending on industry as well. 

  1. Your method of conducting business

You can think of culture affecting your method of conducting business both from a sales perspective as well as an operational perspective. 

Some cultures are more transactional where decisions around working with a company or purchasing a product are made based on what can be gained from the agreement. But there are also cultures that value relationship building and developing a sense of trust before business deals can be made.  

Japan, for example, has a strong relationship-building culture where frank conversation and trust building often happens after work hours during meals and over drinks. Business meetings that happen during the work day tend to be formal with indirect communication styles, whereas open communication is known to happen after hours. Depending on your industry, treating potential customers to meals and drinks in Japan could be essential to your business development, which could add to your costs and time. Going back to the first example about the American who was trying to conduct business development by meeting with multi level marketing leaders, he hadn’t realized the toll that this method of relationship building would have on his physical health, and eventually his company decided to pull out of the Japan market. 

From an operational standpoint, culture may affect anything from how your meetings are structured to the process involved with transacting with clients and to the processes involved both externally and internally within your organization. 

A simple example would be Mexico, which is largely a cash-based society. Most of the population does not use credit cards, and people are used to spending small to large sums of money in cash. Because of this, they’ll go to department stores where there are banks and currency exchange kiosks. In order to be successful with selling your products in Mexico, you may have to consider avoiding selling online in favor of having a physical store in a location  where people know to source your product, and offer cash as a method of payment. 

  1. The speed of your growth and success

One of the primary cultural dimensions that can impact the speed of your business is top-down versus consensus-based decision making. 

If you come from a culture that values top-down decision making, then it means that decisions can be made by few – or even a single – person. It also means that your culture values “majority rules”, so in a case where 10 people are to vote, if there is a split in the vote 6 to 4 then the decision would go with the majority. 

Most consensus-based cultures on the other hand value gaining the approval of all people within a company, regardless of the person’s status. Gaining approval is a process that not only takes time, but it may also result in adjustments to what actions to take to please all parties involved in order for a motion to pass. 

In a country like Japan, they value consensus in decision making, in combination with a hierarchical organizational structure. This is a unique situation in which many meetings are required in order for people of various status to have open conversations while being respectful of hierarchy, while also being sensitive to the needs of those at various levels and functions within the organization. What this means is that if you are to conduct business in Japan, you might find that hearing a decision and moving forward with a business deal with a company could take longer than anticipated. On the other hand, the positive result of this culture is that since everyone in the organization is aware of the deal, the execution after a deal is made is fast in relation to many other cultures that come to decisions quickly, but need more time to think about execution.

Gain clarity about the culture you’ll engage with

How will the local culture impact your business? We have extensive knowledge on how culture can impact your business, and can better advise you on which markets will be a great match for your expansion in terms of culture, product demand, distribution, and timelines. Feel free to reach out to us here!

With special thanks to Katheryn Gronauer from Thrive Tokyo and Sam Barrett from EY’s APAC Operating Model Effectiveness team for their inputs and insights in putting together this series of articles.

International Business Expansion Series

This article is part 6 of a 17-part series about International Business Expansion. Here’s a list of the full series to give you a well-rounded understanding of what to consider when expanding your business abroad, from strategy to execution to management:

Strategy Phase

  1. The #1 Thing that Companies Need for a Successful Expansion Abroad
  2. The 3 Components of a Market Analysis to Know if Your Product is Viable Abroad
  3. How to James Bond Your Profit Margin with Location Analysis 
  4. How to WIN in a New Market with These 6 Models of Execution 
  5. Risky Business: The 2 Key Layers of your Operating Model to Align with Your Growth Strategy 
  6. Lost in Translation: How Culture Can Impact Your Business Expansion
  7. Show me the money: How to Fund Your Business Expansion Abroad

Execution Phase

  1. You’ve Been Taxed: How Tweaking the Structure of Your Organization Can Protect Your Bottom Line
  2. Trash Talk: Why You Need to Analyze Your Processes Before Expanding Globally 
  3. 5 Reasons Why You Should Customize Your Technology for Your International Expansion
  4. Setting Up a Business Abroad: The 4 Kinds of Structures & Legal Implications
  5. Landlocked: How your Transaction Flows can Impact Your Access to Funds
  6. 5 Industry-Specific Legal and Regulatory Obligations that can Impact Your Business Expansion Abroad

Management Phase

  1. “Health Checks”: Your Ticket to Building a Sustainable International Business
  2. How Much Is Your Business Worth? 4 Drivers that Increase the Value of Your International Business
  3. Plug and Play: How to Efficiently Scale Your Business When Expanding Abroad 
  4. Beach, or Boardroom? Plan Your Exit Strategy Before You Expand Globally
Resources

Resources

Resources

Expansion Strategy Phase: Funding

Show me the money: Create Your Funding Strategy for Expanding Your Business Abroad

Learn More

Resources

Resources

Expansion Management Phase: Scaling

Plug and Play: How to Efficiently Scale Your Business When Expanding Abroad

Learn More

Resources

Resources

Expansion Management Phase: Assets

How Much Is Your Business Worth? 4 Drivers that Increase the Value of Your International Business

Learn More