There are many obvious and not so obvious differences between the nature of Asian markets and Western markets that pose challenges at multiple levels for companies and leaders deciding how they will approach their growth ambitions into Asia. Framing the economic as well as cultural challenges we face using a home country lens is an ever present danger for cross border investment and can frustrate and even derail growth plans in host countries. Some of these distinctions are structural and lie in the respective economic histories, while other distinctions are more cultural in nature and lie in the respective social histories.
Leaving aside the informal unregulated economies of Asia aside, in the formal economies of Asia there are 3 key characteristics that shape the nature and feel of these markets and the business models used to thrive and prosper there. Keeping in mind that Asia is an extremely diverse region where generalised rules are dangerous, these characteristics are in effect strategic distinctions shaped by the historical and cultural realities of the Asian region:
- The distinction between focus and opportunity – the developed economy mantra of focus as a strategy, stands in sharp contrast with opportunity as a strategy, evidenced by the number of large Chinese and Korean (chaebols) conglomerates that are a collection of often completely unrelated businesses that have no apparent synergy but driven by the commercial opportunity that presented itself. GE, Siemens and LMVH are some of the exceptions to this in the west. Most western companies are driven by the reductionist principle – ‘this is what we do well, we will stick with that and deepen our capability, build scale and dominance’. Of course there are dangers in generalising about this given there is evidence that the emergence of the Asian conglomerate in some cases was a consequence of the lack of reliability of essential links in the supply chain rather than opportunistic reasons.
- The distinction between business and family – in Asia many businesses are owned by family members primarily because of the absence of enforceable regulatory frameworks and somewhat opaque rules that govern the relationship between state and business. When you can’t rely on your business associates, you turn to family members whom you know you can trust. Historically many family companies thrived for generations in Europe but with the fragmentation of family structures in many western countries (in sharp contrast with the continued primacy of the family in Asia), this has dwindled in scale and size. In Asia these family owned enterprises are held together by family traditions operating on rules of trust and intimacy rather than transactional or contractual in nature as they are in the west. Even in the regulated economies of Asia the impact of relationship trust (as opposed to contractual trust) in commercial undertakings remains strong.
- The distinctions in funding and capital structures – The maturity of capital markets in developed economies has meant that larger more dispassionate entities have emerged characterised by an arm’s length approach by investors to the operation of the entities they fund. In contrast, in Asia where capital markets have not had the levels of sophistication found in the west (although this is changing now), and where either state or private funding is more the norm, the day to day pressure and struggle for getting a return on every dollar you spend has driven a more interventionist approach to running a business. Privately funded businesses are also often driven by higher levels of creativity, ingenuity and productivity. For example, World Bank data shows that SMEs make the largest contributions to the global GDP, making them more productive than the larger highly regulated and costly to run corporations of the west. (Germany’s Mittelstand stands as a European exception to this with its 3.5 million small companies that have successfully fuelled its economy for over a century). The legion of small highly productive companies in Asia has been one factor in its resilience through the Global Financial Crises. Large listed company executives on the hunt for investments in Asia experience some difficulty in understanding the small privately funded company ethos.
For all of these reasons, business formats, structures and models rampant in Asia ‘feel’ so different for those who have only known developed, stable markets.
These differences must also be understood not only at the level of markets, but at the level of the individual. At a very individual level of operation, our behaviour (whether Asian or Anglo Saxon in heritage) is a product of 3 layers of social identity:
- Human nature (universal and inherited)
- Culture (group specific and learned)
- Personality (individual specific/learned & inherited)
These 3 layers of identity for example results in our observation of differences and lead us to ask (of others’ behaviours in contrast to our own):
- Why do some people find it hard to work to a common deadline?
- Why do some people rush into things?
- Why do some people take forever to agree to anything?
- Why do some people never disagree with superiors even if they know them to be wrong?
- Why do some people say yes when they really mean no?
- And so on
While Hofstede and other cross cultural theorists have developed models to help explain cross cultural differences such as those alluded to above, these models do not go far enough. While they shed light on the biases we hold in relation to these differences, they do not explain how these biases (usually operating subliminally) result in a deeply felt belief or conviction that we are operating from the more superior model and ‘they’ are not.
Bias as a prejudicial tendency and determines/drives our expectations of others. However that’s not all that bias does. It also causes us to select our responses and create and trap us into self fulfilling and self perpetuating decision cycles that are difficult to break free of. It is this that our work with companies attempts to address: not just the awareness of the phenomenon of bias (a natural part of the human condition), but the skills required to counteract the material consequences of bias in complex cross-border decision making.
For example merely understanding that some countries differ on the power distance dimension (one of the 5 cultural dimensions quoted in the Hofstede work) does not help an investor change their orientation, or feel comfortable letting go of something that they know and believe to be true, or unlearn the skills that have served them well in their home markets. The cognitive dissonance investors feel in contemplating an investment deal that is so alien to their world and for which they have neither the exposure, skill or inclination, is a major challenge for cross border investment. We resolve that dissonance too often by dismissing the other side’s logic as misinformed, inexperienced or plain stupid, and nothing is achieved.
Our thinking habits are deeply ingrained and attempts to train out these habits are largely futile. That is to say that merely raising awareness of cultural difference is insufficient for real change, awareness needs to be followed up by taking decision making precautions organisationally in order to guard against our thinking habits discounting some part of the complete picture.
In the work we do advising senior teams who are making cross cultural investment decisions, we have found that the single most difficult hurdle such teams have to master is recognising the limits of their own cognition (at the individual or collective level). This is especially challenging if we have only experienced phenomenal success in our home markets and the “we have what it takes to be successful” mindset becomes hard to shift.
In summary, when faced with the decision to invest or deal with businesses in a region with a profoundly different cultural and economic history from our own, we need to be confident about our investment goals, while at the same time being less certain about how to get there and in the process:
- open ourselves to a deeper level of understanding of differences, going well beyond the somewhat superficial labeling of cultural traits
- engage in more divergent ways of thinking, invite scrutiny of our thinking by others and trusting the thinking of others
- develop and embed more robust decision making processes that will safeguard against our own cognitive hubris and ultimately failed investments
Written by Meena Thuraisingham
Director and Principal, Talent Invest
Meena Thuraisingham is a consultant, author, executive coach and thought leader in the area of People and Culture. An organisational psychologist by training, she founded TalentInvest, a niche consulting practice, advising global clients in the UK, Asia and Australia in Capability and Culture. Meena is also a regular speaker internationally on leadership effectiveness and culture change.
Her published books are The Secret Life of Decisions, Careers Unplugged and Derailed!. Get Your Copy Today