Category Archives: Global Trade

Overcoming Cultural Differences in International Trade with Germany

Today’s post, which is partially based on materials from Dick Locke’s seminars on International Purchasing, is edited by Dick Locke, Sourcing Innovation contributor and President of Global Procurement Group and Global Supply Training.

This post is going to examine some of the cultural differences that you may encounter (as an American or Canadian Sourcing / Procurement Professional) if you are doing business with Germany. We start by discussing each of the eight key cultural considerations outlined in our introductory post and then highlight a few other points that you should be aware of.

As per our initial post, this discussion is high-level and general in nature and, as Dick Locke points out in his classic text on Global Supply Management, while it is too easy to stereotype a country, individuals in each country will vary from the stereotype. You need to take time to get to know the people you will be dealing with because their behavior may be nothing like the usual behavior of the country in which they reside and there is always a chance that you might run into people who are trained to act like you … while in your presence.

Germany, one of the most influential nations in the EU, has a very distinct culture that is simultaneously easy and hard to sum up, but if I had to try, I’d start with one of the sayings they like to hear most. Alles lief wie am Schnürchen. (Everything went like clockwork.)

  • Power DistanceWhen discussing power distance in Germany, we need to discuss context. There is a very strong push for social equality in Germany, which makes the power distance very low. However, hierarchy is mandatory in a German company, and this often results in exaggerated deference to one’s superior or CEO.
  • Uncertainty AvoidanceA core value of Germans is ordnung which roughly translates to order or system. They despise uncertainty, and, even moreso than the Japanese, will like to dive into the details again and again and again. This is a culture that will read boring, factual, serious advertisements no matter how long they are … the more facts, the better! (In comparison to Japan where the average advertisement length is a mere 15 seconds.)
  • IndividualismGermans are highly individualistic. While they may never disagree with the group in a formal meeting, this is a result of their hierarchical corporate structure which is encumbered by manuals, systems, and extremely well defined hierarchical paths. Outside the office, you’ll likely have difficulty getting any of them into a queue. (While the Brits like their lines, Germans generally don’t. Remember the story about pedestrians waiting for a green light to cross a road that’s closed to traffic …)
  • Polychronic vs. Monochronic TimeGermans are the most punctual of all peoples. It is a great offensive to even be two minutes late. You can just as easily set your watch by meetings as you can trains.
  • Personal / ImpersonalGermans are a very private people who do not wish to become immediately familiar with strangers. They don’t like small talk, like to get close before greeting (so never, ever shout across a room), and reserve smiles for true friends. In a company, the boss is a very private individual who generally sits alone behind a closed door. However, they do tend to form very deep friendships, and are very personable if you reach that point.
  • Buyer / Seller RankWhile the buyer is generally treated with respect, this does not necessarily imply that the buyer will receive a higher rank, as implied by a number of sources, including Hofstede and Lewis. First of all, to keep the respect, the buyer will have to follow the rules of German business. (One of those rules is always be prepared, even though they will always be more prepared than you with counter-counter-counter arguments.) Secondly, and perhaps more importantly, this is not a society where customer service gets high marks. Retail store hours are dismal compared to the rest of the world (if you fly in Friday night and forget your toothbrush, better buy it at the airport … or do without until Monday morning). Last time Mr. Locke had an outdoor business lunch, he was charged a deposit on plates and silverware!
  • Importance of HarmonyWhile Germans are among the most frank, direct, and blunt people in the world, they also are a stickler for consensus before a decision is made. So, in a way, harmony is very important, but only in the decision itself … during the process, they may flat out disagree with each other and argue every option until every point has been considered and debated, repeatedly.
  • Importance of FaceIn Germany, face is important from a cultural perspective. While they may openly disagree with you, they will likely save any arguments they have between each other for private meetings. And while they will be quick to criticize you, as that’s just their way of being helpful (as they don’t want you to make mistakes or follow a sub-optimal process), they can be quite sensitive to criticism themselves (as that means they overlooked something and did a less than acceptable job; in Germany, it is expected you will always do your best). Thus, you should go to great lengths to avoid criticizing a proposal from them unless you can prove you are right, and present your argument in the logical, flowing manner that they are comfortable with. In other words, if you disagree, Beweise her oder Maul halten! (Put up or shut up!)

The most important thing to remember when attempting to do business in Germany is that, to them, business is serious. It’s not a joke (and jokes will not go over well). They have a strong belief in honest, straight-forward negotiations and expect you to have the same. This doesn’t mean that you can’t be aggressive, as long as you are open about it and can logically argue why your proposal is fair.

Finally, as I strongly recommended in my first post, if you plan to start doing business with any new international country, including Germany, you should do a thorough job on your homework. You can start with:

  • Dick Locke’s course on the Basics of Smart International Procurement (which is offered through Next Level Purchasing and counts towards the SPSM2 certification or ISM Continuing Education Hours), or
  • a customized seminar from Dick Locke’s Global Procurement Group. Dick Locke and his associates each have decades of experience doing business with over two dozen countries, including the fifteen biggest importers and exporters to and from the United States, and Germany. A single day with an expert like Dick Locke could save you months of headaches.

Again, a big thank you to Dick Locke for serving as editor for this special series of posts and providing some up-to-date materials and information for the purpose of this series.

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Are You Cued In To Cultural Intelligence?

Given that I just launched a nine-part series on Overcoming Cultural Differences in International Trade, edited by none other than Dick Locke, I was pleased to see the issue of cultural intelligence getting some recognition in this recent article in Industry Week on “Are You Cued into Cultural Intelligence”.

The article starts off by noting that in a global economy, it’s a mistake to assume that negotiation strategies are a one-size- fits-all proposition and that while negotiation within the dominant American culture seems to be that you are more well-respected if you cut to the chase, say what we are here to talk about, get down to brass tacks, figure out if this is a good deal for both of us and move on, if you begin with that approach in Japan, and didn’t first have a meal, or perhaps even do some sightseeing together, you might be behind in terms of even having a chance to negotiate a deal. Which is very true, but more on Japan in a later post.

The author then summarizes David Livermore’s four-stage plan for developing the cultural intelligence needed to lead abroad, which consists of:

  • Drive
    you need to be receptive to cross-cultural experiences
  • Knowledge
    you need to understand a culture’s impact on people’s thoughts, attitudes, and behaviours
  • Strategy
    you need to understand the best way to take your knowledge and apply that knowledge
  • Action
    you need to know when to adjust your behaviour to a cross-cultural setting

Which is spot on, but notice the important of knowledge and how it underlies strategy and action. So stay tuned for the coming posts in the nine-part series on Overcoming Cultural Differences in International Trade. They just might get you one step closer.

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Overcoming Cultural Differences in International Trade with China

Today’s post, which is partially based on materials from Dick Locke’s seminars on International Purchasing, is edited by Dick Locke, Sourcing Innovation contributor and President of Global Procurement Group and Global Supply Training.

This post is going to examine some of the cultural differences that you may encounter (as an American or Canadian Sourcing / Procurement Professional) if you are doing business with China. We start by discussing each of the eight key cultural considerations outlined in our introductory post and then highlight a few other points that you should be aware of.

As per our initial post, this discussion is high-level and general in nature and, as Dick Locke points out in his classic text on Global Supply Management, while it is too easy to stereotype a country, individuals in each country will vary from the stereotype. You need to take time to get to know the people you will be dealing with because their behavior may be nothing like the usual behavior of the country in which they reside and there is always a chance that you might run into people who are trained to act like you … while in your presence.

Before we begin, it’s important to understand that (the Peoples Republic of) China isn’t just another country. With almost 1.3 Billion people, it has the largest population of any country spread out over 9,600,000 square kilometers — the world’s third largest country by area. It’s also home to the world’s largest surviving agricultural society, with a heritage that goes back over 5,000 years when they first started farming along the Yellow River where they were isolated from the rest of the developing world by an ocean to the east, jungles to the south, mountains to the west, and freezing steppes to the north.

As a result, you have one of the most developed cultures in the world, with a long history behind their well established social order, which requires an inequality between people to maintain stability. That’s part of the reason that the Chinese generally believe that all foreigners — who are (traditionally) inferior, corrupt, decadent, disloyal, volatile, barbaric, and devils-in-disguise — are inexperienced in matters of business even if they are technically competent.

  • Power Distance
    The very nature of China’s social order is that there is a power distance between any two individuals. Thus, there is a significant power distance between the boss, whom you must generally address, and his subordinates. However, you will find that power distance higher in the north (where it is comparable to Mexico) than in the south (where it is comparable to Taiwan).
  • Uncertainty Avoidance
    As a rule, the Chinese don’t like uncertainty. This goes double in the north. The south, more like Taiwan, can deal with some uncertainty with its trusted business partners.
  • Individualism
    Traditionally, individualism has been taboo. As a result, individualism is very low. The Chinese way is to reach harmony within the group.
  • Polychronic vs. Monochronic Time
    The Chinese are very punctual — they abhor wasting anyone’s time. As a result, in formal business, they will be very monochronic, especially in the north where they mirror Korea. (The south is more like Taiwan.) The exception to the rule is social gatherings, including dinner entertainment. They will take their time during these engagements, and it’s important that you don’t rush them to build up the relationship and trust that they require to do business with you. (You should also know what Ganbei! means.)
  • Personal / Impersonal
    Despite the relatively high crowding of major cities, the Chinese have a deep respect for privacy. If they can, they will maintain a 1 meter distance from you. And they also have a deep respect for harmony. As a result, while they may ask blunt questions about your personal situation and beliefs (so that they can avoid offending you), they can also be rather impersonal until they get to know you. It’s a duality that will take getting used to.
  • Buyer / Seller Rank
    As in Japan, the buyer always comes first, at least as far as appearances are concerned. (Consider the number of recalls we’ve had with Chinese products. After all, the Chinese also believe in creativity in business, especially where profit is concerned.) So while this means you are conveyed rank by your status of buyer, you have to balance this with the Chinese view of foreigners and their strong aversion to dealing with people who engage in taboo behavior. In China, egotism, loudness, arrogance, lack of consideration (for others), and boasting — the typical American businessman stereotype — is taboo. Thus, you will not benefit from your station if you do not respect their ways.
  • Importance of Harmony
    The importance of harmony in China — which sees itself as the middle kingdom, the center of the universe, and a leader in morality, spirituality, and culture — cannot be underestimated. Relationships are the most important things. Tasks are secondary.
  • Importance of Face
    The importance of face is very high in China. It’s a foundation of their society. Unlike in the US, where you can disgrace yourself in LA and then move to New York, mobility in China is extremely limited. You might be stuck in that job for the next 40 years … so you better not lose face!

A few other points to note are the importance of virtue, the real reason for meetings, and the guanxi mutual relationship.

In China, virtue is the most important thing. Two mutually exclusive answers can both be true if they are both virtuous. Remember this in your dealings.

Meetings exist simply to gather information. Decisions are always made later. Furthermore, many meetings, both formal and informal, will be needed to build the relationship … so plan on many trips during the “negotiation”.

Finally, guanxi, the linking of two people in a relationship of mutual dependence, is common in Chinese business. If you are given, and accept, an unusually expensive gift, you can be sure it will soon be followed by a request for a huge personal favor. So make sure you have your gift policies well defined before you start (and that you know how to inform your potential business partner of them in a gracious and non-offensive manner).

Finally, as I strongly recommended in my first post, if you plan to start doing business with any new international country, including China, you should do a thorough job on your homework. You can start with:

  • Dick Locke’s course on the Basics of Smart International Procurement (which is offered through Next Level Purchasing and counts towards the SPSM2 certification or ISM Continuing Education Hours), or
  • a customized seminar from Dick Locke’s Global Procurement Group. Dick Locke and his associates each have decades of experience doing business with over two dozen countries, including the fifteen biggest importers and exporters to and from the United States, and China. A single day with an expert like Dick Locke could save you months of headaches.

Again, a big thank you to Dick Locke for serving as editor for this special series of posts and providing some up-to-date materials and information for the purpose of this series.

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Are Economics Going to Push Us Back to China?

Despite the disadvantages, which include

    • limited ability to respond to demand changes,
    • high logistics costs in boom economies, and
    • the potential for large currency-exchange losses

it looks like economics are going to push many multi-nationals back to China.

Consider the following advantages that the global recession has created, as pointed out in a recent article on “Sourcing Successfully in the New China” by Accenture’s Jonathan Wright:

  • Dips in the global economy have left China with lots of excess manufacturing capacity, which exceeds 50% in some industries.
  • Dramatic overcapacity exists in ocean freight, with hundreds of vessels floating fallow in Hong Kong’s harbours.
  • China’s domestic growth is as promising as any economy in the world.
  • Labor rates are still significantly lower than Western countries.
  • Most suppliers have dramatically improved their product/service quality by implementing control mechanisms and systems, renewing manufacturing lines, and increasing their available talent pool. They are also much more open to continuous improvement methodologies.

When you put all this together, those companies with good demand planning systems and dual sourcing strategies (to allow for unexpected demand increases to be handled near-shore) could lock in great deals now on both production and transportation and have a significant advantage during the forthcoming recovery while being in a great position to serve the emerging domestic market in China. While I normally don’t push the outsourcing bandwagon, it looks like those companies that climb aboard early could benefit greatly while those companies who wait until it becomes the “in-thing” will have totally missed the boat (as prices will rise as capacity diminishes).

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Overcoming Cultural Differences in International Trade, An Introduction

While there’s a lot of profit to be made in properly conducted international purchasing, there’s also a lot of risk, especially when you are starting out. One of the biggest risks is that of cultural differences. If you don’t understand the culture you’re dealing with, and they don’t understand you, assuming you even get to an agreement, it’s a disaster waiting to happen.

Fortunately, of all the risks, this is the easiest to mitigate … all it takes is a little understanding, patience, and, first and foremost, a little education. Furthermore, most of your issues will probably revolve around the following eight key cultural differences outlined in Dick Locke’s classic text on Global Supply Management.

Basically, the key to purchasing success ultimately boils down to understanding the key differences between your culture and that of your potential supplier, which include:

  • power distance
    a measure of the inequality of power and influence within a society; it determines how well “displays of power” will go over
  • uncertainty avoidance
    a measure of how uncomfortable a society is with uncertainty, it determines how receptive a supplier will be to a proposal that is too uncertain or too rigid and how the supplier will react to sudden surprises
  • individualism
    a measure of the balance between the needs and wants of the individual and the needs and wants of society, it determines how much of the negotiation will be between individuals and how much will be between groups
  • polychronic vs monochronic time
    monochronic cultures, which view time as something to be “spent” or “wasted”, are schedule-driven while polychronic cultures are interaction driven; while monochronic cultures will usually adhere to the schedule no matter what, polychronic cultures will finish one interaction before moving on to the next, even if it means being three hours late
  • personal/impersonal
    this relates to the importance of personal relationships in the business setting; personal countries will require a good relationship before they do business with you; highly personal countries will often use relationships as a substitute for a legal contract
  • buyer/seller rank
    cultures with social ranks, castes, etc. may view you as someone in power or someone without power, someone inside or someone outside, or someone unknown and act accordingly
  • importance of harmony
    in Asia, harmony is often the ultimate goal and the push will be towards compromise; confrontational approaches will not yield success
  • importance of face
    in many countries, “face” is important and individuals will go to great lengths to avoid being “embarrassed” in front of their peers; this can lead to misunderstandings as they might say they understand when they don’t, agree when they don’t, etc.

When you understand these differences, you are on the road to success. Of course, these cultural perspectives are different for every country, but to get you started on your path to global cultural understanding, I’m going to discuss China, Germany, India, Japan, Korea, Mexico, and Thailand at a high level in this series of posts. These discussions will, of course, be general and not specific and, as Dick Locke points out in his classic text, while it is too easy to stereotype a country, individuals in each country will vary from the stereotype. You might also run into people who are trained to act like you … while in your presence. You need to take time to get to know the people you will be dealing with because their behavior may be nothing like the usual behavior of the country in which they reside. (This is especially true in countries like China where the contrast between life in big, modern cities and life in out-out-outlying rural areas is literally night-and-day.) These posts, which will be partially based on materials used by Dick Locke in his Global Procurement Group seminars, will be edited by Dick Locke himself.

Finally, if you’re serious about doing international business in a new country, I strongly recommend you do your homework first. You could start with Dick’s course on the Basics of Smart International Procurement (which is offered through Next Level Purchasing and counts towards the SPSM2 certification or ISM Continuing Education Hours) and his seminar on International Purchasing and then bring in an expert (from the Global Procurement Group, for example).

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