Alliance Director, Richard Dare, quoted in Financial Times
August 24, 2011

Shortly after its recent acquisition of an emerging market company, Tyco, the multinational manufacturing and services group, conducted compliance training for the sizeable workforce it was incorporating. The training emphasised integrity in business dealings and the importance of speaking up to report compliance concerns.

Within days Tyco got a tip from a new employee that there was a pre-existing arrangement to pay a customer for a long-term contract. Acting on the information, Tyco intervened, preventing the graft that is all too common in emerging markets, and dismissing the offending worker.

“The reporting process and ability to raise concerns is almost always a new concept for employees in emerging markets,” says Matt Tanzer, Tyco’s chief compliance counsel. “We want and expect people to come forward, but these are challenges facing every company.”

While Tyco came out of the episode unscathed, its intervention to prevent foreign bribery serves as an extreme reminder that as multinationals expand into new markets, they need to take measures to translate their corporate culture for new territories.

The tension between the need for globalisation on the one hand and the nuances of localisation on the other has long made setting up large operations in new countries one of the most challenging tasks facing growth-hungry multinationals. But now the rapid pace of globalisation is providing businesses with clearer lessons.

“Every company has to decide what is core and what we have to adapt,” says John Weeks, a professor specialising in organisational behaviour at IMD business school in Switzerland.

While the cultural integrations necessary for operations in new countries can provide parent companies with a more nuanced understanding of local markets, big companies still sometimes prove ham-fisted when setting up – imposing foreign work practices on
unreceptive new employees and failing to be sensitive to local needs.

“We’re still in the learning process about how to deal with globalisation and localisation at the same time,” says Masaaki Kotabe, editor of the Journal of International Management and a professor of international business and marketing at Temple University in Philadelphia.

“A lot of companies are struggling to find the middle way,” he says. “As a global company they would like to impose their view of the world. But being aware of cultural differences, you can’t manage Chinese or Japanese employees the same way you manage Americans.”

The same is true for non-US companies setting up in new countries. Hyundai, the South Korean carmaker, has a reputation for strict working environments in its other Asian plants.

“It is a bit like military occupation,” says Dan Denison, another professor at IMD. “It is an aggressive, very capable company. It is doing well, but from a culture point of view nobody won. It’s a colonial occupation.”

Experts and executives concur that while the first instinct of many companies is to replicate practices and facilities abroad without any localisation, this often backfires.

“Intel [the US chip manufacturer] has a simple policy when it moves manufacturing operations into a foreign country – replicate everything exactly,” says Mr Weeks. “That includes having the men’s rooms in the same place, all the way down to the studs in the walls.”

While such military precision may work for building assembly lines, it can lead to strife when it comes to interpersonal relations.

“You don’t force a square peg into a round hole,” says Mr Denison. “One of the biggest mistakes companies make – and it’s not just US and western Europe, it’s Chinese and Brazilian companies – is to force fit and make them all think the same way, basically like a colonial model, where you try to set up systems to make them like the parent.”

Tesco, the world’s largest retailer by sales after Walmart and Carrefour, is one company that has found a way to integrate its corporate culture into new markets. “It’s a very thoughtful company, the way it sees culture is it is continually evolving and it needs to let it evolve,” says Mary Yoko Brannen, an organisational anthropologist with Insead business school. “Historically, it has got executives to do home-stays in new markets, to stay with families to see their relationship with food.”

Tesco has also tried to import foreign knowledge, recently bringing five managers to the UK to be in-house ethnographers of Tesco UK. “I’ve been in the field for 35 years and I’ve never seen it done, it’s leading edge,” says Ms Brannen.

Richard Dare, chief executive of Pacific Rim Partners, a private equity firm with global operations, says such moves point to the importance of creating blended management teams. “Importing a management team en!tirely from the parent company’s country is a certain way to fail,” he says. “Relying on an entirely native team from the foreign country to run the international office is an equally foolish plan. A blended staff provides the easiest way to effect cultural transfer in both directions, which will be crucial to growing the new business.”

Sometimes the need to expand is fuelled by something as simple as a need for language expertise. PayPal, the online payments group owned by Ebay, operates its European customer service centre out of Dublin. But earlier this year, as PayPal usage spiked in Germany, it was unable to hire enough German speakers in Ireland to meet demand. So
PayPal relocated a recruitment manager from Ireland to Berlin in an attempt to embed PayPal’s culture in its new office.

The industrial conglomerate GE has 16,000 employees in China, most of whom have been with the company less than three years. Despite this rap!idly acquired foreign workforce, GE has worked to blend experienced managers with locals, and create a culture of transparency and accountability.

“If you go back to China, the leaders have all lived in the US or Europe. They’ve come up through the system,” Jeff Immelt, chief executive, said recently at an event hosted by the Corporate Executive Board. “If they see something, they have access to a system where
they can report it with no recriminations, whether in Chengdu or Chicago. That’s going to have people accountable.”

With a sprawling presence overseas, Mr Immelt will be fortunate if his thousands of new employees all uphold the famous “GE Way.” But by mixing institutional experience with local knowledge and encouraging self-policing even in cultures where such openness is unfamiliar, Mr Immelt may already be ahead of the game.

“When companies go to another country they have to start with a willingness and interest to understand what is unique about the company and what they represent, and be truthful about that,” says Mr Denison. “You never know who you are until you are far away from
where you came from.”