Cultural Differences as a Hidden Hurdle to Successful Business

Bachelorarbeit von Isabelle Mrugalla

Introduction:

The main effect of globalisation over recent decades has been the development of the world as a united market place.

Through multinational companies, globally accepted management styles or organisational structures the impression might be given that there are hardly big differences in the way people do business all over the world. However, the variety of human cultures makes it impossible to believe that there is a uniform theory corresponding to all cultures on earth or assimilating their way of doing business.

Misunderstandings while doing business or even failure of business relationships are, despite ever increasing market transparency, part of every day business life. It is less frequently the consequence of economic discrepancies but more often hidden cultural incompatibilities that can cause problems between two or more parties.

Even between countries that have maintained business relationships for many years, as is the case between Germany and Spain, the problem of cultural differences is unfortunately present and moreover underestimated.

For Germany, the European export champion, Spain has been for at least a decade one of the top export destinations. Also German companies located in Spain contributed 8% to that country’s G.D.P. for 2010. Those big subsidiaries originated from a successful attempt to do business with a different culture and yet, to a greater or lesser extent, still face this difficulty every day.

This applies equally to enterprises that are pure exporters, those having production plants, distribution or sales departments in the respective country.

Helping businesses avoid the potential obstacles arising from cultural differences through sensitivity and understanding would improve working relationships and smoothen the path toward economic growth.

Hit hard by the European economic crisis, Spain had and still has to suffer economic cutbacks. Since Germany is the second largest destination for Spanish exports it needs to maintain this presence in Germany.

As the head of Spanish government José Luis Rodríguez Zapatero and the German chancellor Angela Merkel pointed out on the German-Hispanic summit conference on 2nd of February 2011 in Madrid, there is still a lot of potential that can be exploited when both parties are pro-active.

Looking at the above mentioned facts it is evident that both countries need each other. Besides creating a common political base, it is essential for their economical development to enhance the business relationship among companies.

Trying to support the postulated proactivity this paper is meant to create cultural sensitivity for and understanding of the way the other culture does business. After reading this paper companies that deal with the respective culture will have improved their abilities to distinguish economical misfit from cultural misleading. Through avoiding the second, an unnecessary complication due to cultural misunderstanding, they will be able to augment their success.

To make that possible the cultural differences are researched through a quantitative study. The principle factors that frequently lead to misunderstandings or even to failure of deals are summed up from practical business guides.

This selected collection of guides is the base to generate the hypotheses examined by the study. On a business to business level the hypotheses are checked for substance, actuality and practical relevance.

Where it is possible, the evaluation of the results is supported by theoretical concepts of culture.

To create a better understanding of cultural differences in the context of business the thesis starts with a definition of the concept of culture. After delimiting cultural behaviour though the concept of mental programming the second chapter also points out the core elements of culture and its visible characteristics. The development of culture from the historical viewpoint introduces cultural diversity across national borders.

After creating an understanding of cultural diversity among nations, this paper connects national culture with business behaviour and shows the importance of culture in this context.

The empirical study as the main part of this thesis is introduced by explaining the design of the study, pointing out how the study was prepared and conducted, indicating its limitations as well as problems and obstacles that occurred and have to be taken into account.

The evaluation of the study is divided into five elements of doing business referring to a general chronology of a business relationship starting with making contact, then comes the business lunch, followed by the business meeting. The next element is negotiation and the final one is the cultivation of contact.

The study finishes with an attempt to answer the question whether or not a tendency to an adjustment of cross-cultural business behaviour at a European level exists.

Table of Contents:

	REGISTER OF ILLUSTRATIONS	VII
	REGISTER OF ABBREVIATIONS	VIII
1.	INTRODUCTION	1
2.	CULTURE AND BUSINESS ARE ACTING IN CONCERT?	4
2.1	The concept of culture	4
2.2	Culture in business behaviour	6
3.	THE STUDY	9
3.1	Design of the survey	9
3.2	The study - Five elements of doing business	11
3.2.1	Making contact	12
3.2.1.1	Communication channels	13
3.2.1.2	Base of authority	17
3.2.1.3	Expectations about the first meeting	19
3.2.2	Business lunch	24
3.2.3	Business meeting	29
3.2.3.1	Meeting culture	29
3.2.3.2	Communication style	31
3.2.3.3	Attitude towards feedback	35
3.2.3.4	Timing	38
3.2.4	Negotiation	40
3.2.4.1	Goals of negotiating	40
3.2.4.2	Decision-making process	43
3.2.5	Cultivation of contact	47
3.2.5.1	Implementation	47
3.2.5.2	The right way for cultivation of contact	49
3.2.5.3	How to treat the network	50
3.3	Tendency to adjustment	52
4.	CONCLUSION	54
	BIBLIOGRAPHY	56
	BIBLIOGRAPHY – INTERNET SOURCES:	57
	REGISTER OF APPENDIX	58

Text Sample:

Chapter 3.2.1.3, Expectations about the first meeting:

The hypotheses tested in this question were about the formality of address, the expected person to start the business relationship with and the difference in handling personal and business issues.

The practical guides’ suggestion was that Spaniards would prefer a representative from a high level position. Informal address is used quickly but is not rated as a sign of personal relationship. Germans have a strong sense of privacy therefore prefer to talk nearly exclusively business without long warming up through small talk. Formal address is obligatory.

Asking business people, who already have experience with the respective culture, what expectations they have about a first meeting shows different results that are determined by their perspective.

The response to the survey is open to two interpretations; on the one hand based on actual experience, on the other hand on expectations. Following on from this the answers can demonstrate the habit of the counterpart or the habit of the respondent. What that means will be more clearly seen in the following evaluation of this subdivision.

Let’s first point out an obvious result. A superficial cultural difference is the form of address that is used and is illustrated in the following bar diagram. One can quickly read out that the corresponding hypothesis about formality is proven. It is for sure that German protocol determines formal addressing whereas Spaniards don‘t rate it as vital. These statements characterise the favoured situation, respectively.

Although formality is so important for Germans, with nearly 45% strongly agreeing on using surnames, still a third expect a quick change to informal address. So in the context of a first meeting with their Spanish business partners these two answers signal an adjustment of the German habit towards the Spanish customs.

However, in an initial business situation where the majority of Spaniards do not place importance on the use of surnames and prefer to use first names but 50% of the Germans still disagree with this, an uncomfortable atmosphere is created.

A deeper understanding why Germans fend off the informal protocol and why Spaniards don’t would help to loosen tension. This will help new relationships between the two parties as well as improve ongoing ones.

In German society informal address is reserved for close friends. Crossing the border from 'Sie' to 'Du' (formal to informal address), is mostly accompanied by drinking rituals. This opens the private zone of a German that is not entered easily and regularly by business partners.

This exposes the form of address as an invisible boundary of personal space. Those boundaries are not only invisible but they vary from one to another culture in fact it varies between Germany and Spain.

Informal address does not describe a boundary for Spaniards and therefore does not affect their personal space. It is no superficial ritual that indicates a deeper value system as it does in German culture. Indeed the Spanish space bubble is so wide that things like sitting close together, touching during talking and also talking in a loud voice are a commonplace in Spain, whereas German business people feel offended by this proximity and can even react aggressively to it. Empathy for this diversity facilitates the contact with each other and reduces superficial misunderstandings.

Going further in the process of a first meeting, 83% of Spanish business people expect that the topic would be quickly directed towards business issues. As shown in the next diagram this is a higher percentage for Spaniards than for Germans. This seems to disprove that Germans insist more on business issues than Spaniards do.

Yet, the phenomenon can appear at this point that the answer reflects more the reality that the Spanish are facing while doing business with Germans than their favoured expectations.

So the hypothesis is actually proven. It is proven by the fact that Spaniards have experienced and now in fact expect that their counterparts proceed quickly to business topics. Although this does not simultaneously mean that it is the best way of starting a business relationship in Spain.

The second statement in figure 9 shows whether the discussed topics are more personal and therefore less business orientated. It seems that those relationships are very down to earth business. Seven out of ten Germans and 50% Spanish don’t expect to talk about personal issues. This situation seems to be dominated by a direct and business orientated partner (Germany) rather than by a relationship orientated (Spaniards). To improve rapport with Spanish business partners Germans should recognize the need for small talk on the Spanish side as well as the general benefit of it. To what extent this is a culturally related difference will be assessed in the element of the business lunch.

Starting with mode of address and just now having dealt with the topic, there is a third part that contains cultural hurdles in the beginning of a relationship and therefore is covered in this first element. It is the contact person one expects to meet at a first encounter. The answer is to a greater extent determined by the national culture.

According to the practical guide, Germans are very purpose-built. They place stress on the education of specialists. So having Germans as business partners makes it most likely to get in contact with a person who is an expert in the field that will be discussed. As Spanish companies are mostly small family firms. They are led by a traditional management style with the power concentrated at the top. So here the first contact person is normally the head of the company, mainly represented by the owner. To prove these hypotheses the following graphic can be used as an aid.

At first sight the impression is created that fewer Germans than Spaniards expect an expert to negotiate with. This would mean the created hypothesis is disproven but again the statement has to be diversified. The given answer reflects what a party is facing in reality. So, on the Spanish side a 100% expects to face a professional because that is what they experienced in the past. At the same time this proves the hypothesis that Germans favour to send an expert to negotiate abroad. The answers from German companies show that they are less often confronted with professionals. The small proportion of Germans that disagree are probably mostly smaller companies. Yet, this statement can not be proved by the evaluation of the survey. So in general 63% of Germans expect experts, of these 36% strongly agree.

This high percentage of Germans expecting an expert can also be influenced by their desired, favoured and often demanded situation. In this case the real message would be that they meet even less experts in reality than is suggested in the survey results. If this last inference is not true the result pictures a trend that Spanish business men on a first meeting are more likely to be an expert than the hypothesis predicted. To solve this ambiguity the last assumption (Spanish are more likely to be experts than expected) has to be combined with the answer given for the second point in figure 10.

This answer points out that 80% of German business men expect the company owner to participate as the contact person in a first meeting. This represents 100% of employees that work in a company with less than 1.000 employees. Only bigger companies disagreed with that statement.

If we begin with the premise that the contact person is either the owner or an expert, this experience would mean that in deed the previous answer is influenced more by the Germans’ favoured situation than it derives from the fact that Spanish representatives are experts.

Summing up the last chart German business partners are more likely to be experts than Spaniards are. And Spanish representatives are mainly company owners. This might create a problem of appreciating mutual authority. However, the value system revealed in the question about authority that technical competency as well as intelligence is highly rated by both cultures and therefore shouldn’t evoke problems. Where a problem could arise despite this equal base could be the form of presenting those attributes like intelligence or technical competency but this couldn’t be proven through the survey results.

In retrospect, both countries have rated this as the most important element to establish a successful business relationship and one has to admit that it is a very tricky phase. On the one hand it hides a lot of hurdles and on the other hand it seems to keep various options open, which show that business culture is in a constant state of change. The possibility that a culture changes if a different practice turns out to be more effective to guarantee survival should never be underestimated.