Cross-Cultural Management: hard evidence suggests diversity is no longer a “soft” topic
AUTHOR
Dr. Parissa Haghirian
Professor of International Management
Sophia University, Tokyo
Diversity matters! In recent times, we have been acutely aware of the problems that arise from an ignorance to diversity in each of our societies. It follows then that our companies and corporations need to recognise diverse interests, background and experiences in the workforce.
Above all, diversity among employees has a positive effect on company results. Companies with diverse board or team members achieve higher profits, reduce turnover, satisfy team members and enable better communication with new consumer groups. The current discussion on diversity, equality and integration gives many companies the opportunity to draw from a larger and more innovative resource pool. Managers, at all levels, now understand that equality is an issue that can no longer be neglected. We’ve also learned that dealing with employees with different cultural background and their needs is something every company must take seriously.
The understanding of diversity and the need to manage differently across cultures has found success at the team and interaction level. But this was not always the case. Until recently, diversity and cross-cultural management was seen as a “soft” topic in international business studies—mostly offered as an optional class in business schools. A personal anecdote is indicative of this. Taking “Cross-cultural Management” - considered a “soft” topic - during my time in business school, the lecturer was a woman, the students were all female and never was a single man seen in the class. And when writing my dissertation on “Communication in European-Japanese multinational companies” 20 years ago, I was told, even then, that the topic of “cross-cultural management” had already become outdated. The prevailing idea was that cultures were converging thanks to modern technology’s improvements in global communication. I distinctly remember my PhD supervisor trying to convince me that “businesses in China cannot be any different from business anywhere else;” after all, every company wants to make a profit. Every manager speaks English and business is business anywhere in the world. Studying cultural difference may simply be a waste of time!
Well, everyone who works in international business knows that this attitude is the perfect miscalculation. Every company has its own management culture, which—on its own—can be very problematic during company interactions. More and more people from different cultures work together every day. But instead of becoming more and more the same in our views, we develop more and more an awareness of different views, values, experiences and management practices. These differences can inspire us. But they can also lead to conflicts and misunderstandings, which often come at a high price for companies. The displeasure of employees who feel overlooked and dismissed has triggered a long overdue contemporary debate on how to manage diversity in companies’ teams. Assuming diversity and cross- cultural management as a “soft” topic is one of the costliest mistakes a company can make.
But what about the relevance of culture for top managers and strategic decision makers? Has the discussion on diversity and cultural differences reached top management levels?
Business cases of the past years make us doubt, especially when we at the interaction between companies, strategic alliances, acquisitions and company mergers. The best example here is the merger of the German company Daimler and the American company Chrysler, touted as the greatest merger of all time—a “marriage made in Heaven”. As we all know, a few years later this marriage ended in a very media-intensive divorce that led to enormous losses. The reason? The cooperation between employees in both companies turned out to be more difficult than expected. Differences that began at the functional level, such as how to conduct business trips, continued through to critical questions, such as the division of work and the future of corporate strategy. German
and American ideas and attitudes were very different: corporate cultures and their influence on all management levels were also underestimated, which led to the breakup of the alliance. So, it seems that business is not the same everywhere: the biggest merger of all time is a victim of cultural ignorance!
Intercultural misunderstandings can also cost foreign investments and market shares. Japan’s best-known example here is Schindler Elevator, who waited too long to apologise publicly after an accident with one of their elevators in Japanese. This resulted in very negative press in Japan and made it impossible to continue selling elevators in the market. The business was acquired by a local competitor in 2016.
Additionally, and just as important, are the differences between consumers in different countries. Where this is important across many industries, it is especially so for consumer goods. Consumers usually also have local suppliers from whom they can buy products. These rivals have an advantage over international competitors because of their better understanding of the local customers’ needs. Ignoring customer requests or introducing local practices and products without adjusting is no longer possible.
Here, too, the list of failures is long. An interesting example here is eBay, a company that was found success worldwide but had to give up the Japanese market after a few years. Walmart’s internationalisation strategies failed in major markets, too. The company left Germany and Korea form an inability to replicate its successful business model in those markets. When entering Japan in 2002 the company should have learned from its mistakes, but failed again.
In 2020 the majority of the firm was sold to a local investor. The Japanese media explained Walmart’s bungle in Japan as “tone-deaf management, which failed to take into account local business customs and other concerns” (Yu Tanaka in Nikkei Asia, Nov 15, 2020). One wonders how many times a company can make the same mistake.
These examples show that culture and diversity should by no means be neglected at not only the team and department levels but also by top management. International competition is intensifying as consumers, investors and business partners can also choose cooperation partners that know and respect their culture. Ignoring these expectations can cost millions and careers.
Hard evidence shows that diversity and cross-cultural management are more than just “soft topics”. Understanding diversity and cultural differences is an essential factor if a company wishes to remain competitive in foreign markets.
