Building business in Asia: managing around different practices

Tuesday 31 May, 2016

For many small to medium sized Australian businesses, many Asian countries offer significant economic benefits, largely due to lower wages and lower manufacturing costs.

CQUniversity Associate Professor and MBA Director Michael Segon said the attraction of off-shoring production and in some cases services to developing countries in South East Asia such as Vietnam, Thailand, Cambodia or to more advanced economies such as Malaysia, India or China can be of significant benefit and help advance growth and profits.

However, the lack of investigation about a country, its economy and culture, can just as easily result in misunderstandings, delays and engagement in business practices that could potentially be in breach of local and Australian law.

Cultural Errors

Culture has been described as the set of values or behaviours that are shared in common by the majority of the people of country.

Unfortunately organisations who enter foreign markets either as suppliers or establish manufacturing or services, often make fundamental mistakes - some of which can be amusing, particularly those involving advertising and translation of campaigns into foreign languages, but ultimately they turn out to be very expensive, either through lack of sales or not understanding local business practices.

A common mistake is to assume that the way we do business in Australia is directly transferable to a foreign country.

Cultural Models help Explain and understand different cultures

Several models have been designed as a means of classifying and understanding cultural differences.

Perhaps the most widely known is that developed by Geert Hofstede, who undertook some significant research with employees of IBM to try to understand why their cross-cultural teams were not functioning effectively.

Hofstede developed a model that identifies six characteristics of culture.

1. Power distance - the extent to which power structures (and power inequity) are accepted by a society.

2. Uncertainty avoidance - the extent to which a society uses law and regulation to create certainty.

3. Individualism - the extent to which a society emphasises individual rights over those of the collective.

4. Masculinity - the extent to which a society emphasises individual rights over those of the collective.

5. Long Term Orientation versus Short Term Orientation the extent to which a society plans for the future as distinct from a focus on the immediate or short term; and

6. Indulgence versus Restraint - which can be described as the degree of conservatism within the society.

Hofstede’s website details information about many countries and regions that business can use to identify general characteristics about a society.

While they do reflect broad trends we should not mistake them for predictors of individual behaviour.

Business Risks: Bribery and Corruption

Undoubtedly one of the biggest challenges when working in developing countries is the extent of bribery and corruption as a modus operandi.

Bribery can be defined as gaining improper advantage for business activities, such as gaining orders, applications for regulatory permits, customs, taxation concessions and judicial and legislative rulings.

Whereas corruption is usually described as the breaking or ignoring of formal rules governing the allocation of public resources by officials in response to offers of financial gain or political support.

There are three major mistakes made by business people when operating in countries where bribery and corruption are prevalent.

The first is the mistaken assumption that these practices are part of a nation’s culture - that is the way in which business is done and therefore needs to be accommodated (the when in Rome do as the Romans do fallacy).

The second mistake is that these countries have few laws and systems that address bribery and corruption and the third is that the home country, e.g. Australia, do not have any jurisdiction over the activities of Australian managers and companies abroad.

Organisations such as the United Nations, the OECD, the World Bank and Trade organisations have established conventions and rulings that are increasingly requiring countries to legislate against bribery and corruption and to insure robust institutional frameworks are established to enforce the legislation.

Many countries in the Asian region not only have such legislation but are addressing the institutions of enforcement, particularly the police, the courts and the public sector.

Many of the countries in the Asian region have strong spiritual and religious foundations, including Buddhism, Islam, Hinduism and Confucianism.

These all make pronouncements regarding lying, stealing and cheating and taking advantage of others, which is what bribery and corruption are.

 Taking the time to speak with people from these cultures often reveals that whilst the practices are unfortunately ingrained, they are recognised as disadvantaging people and have adverse effects on economic development.

Perhaps the most striking of errors is the mistaken assumption that managers and organisations can engage in behaviour overseas with impunity from home country laws.

The most influential initiative that addresses global business activities is the OECD convention on combating bribery of foreign public officials in international transactions that went into effect in 1997.

Article 1 obligates each signatory nation to make it a criminal offense ``for any person intentionally to offer, promise, or give any undue pecuniary or other advantage whether directly or through intermediaries, to a foreign public official‘’ to obtain or retain business or ``other improper advantage‘’

Australia’s Foreign Corruption Provisions: Section 11.5(1) and 70.2(1) of the Criminal Code Act 1995, applies to Australian citizens, residents and companies who bribe or attempt to bribe a Foreign Public Official.

They can be prosecuted under Australian law even though the actions happen outside Australia.  The penalties can include a maximum 10 years imprisonment and/or maximum $1.1 million in fines for an individual and fines the greater of  $A11 million or three times the value of the benefit or 10 per cent of annual turnover if a value cannot be determined.

Even more robust legislation exists in the US with their 1977 Foreign Corrupt Practices act, with individuals and companies fined and imprisoned on a regular basis and the UK’s 2010 Bribery Act which is acknowledged as one of the toughest and harshest of all. Many other countries have enacted similar laws in an attempt to stamped corrupt practices.

It should be noted that even as a non-citizen of these countries, simply being an employee of an organisations whose home nation has such laws, will often mean that they also apply to the employee.

A recent KPMG survey found that many Australian and New Zealand companies operating in countries where bribery and corruption are prevalent were unaware of or had not taken advice regarding this type of legislation.

Doing some basic preparation using websites such as www. Hofstede.com, Transparency International, the OECD and Austrade can help in identifying critical cultural and legal information that can help a company avoid costly errors.

Similarly the major consulting companies such as KPMG, PwC, also provide services that can help companies prepare for international experiences.

Ultimately it comes down to the preparedness and integrity of individual managers and employees and how the engage in an international context.

Join CCIQ and CQUniversity tomorrow (June 3) for a special webinar: Building business in Asia: Managing around different practices

Register here

 

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