The Culture of International Business
Can you comment on the role of culture in Canadian businesses working internationally?
It's an issue of growing importance. We are seeing the Canadian economy globalizing at a dramatic pace and companies that traditionally manufactured locally and sold locally are now becoming part of global supply chains. They're sourcing, competing and selling internationally. It means that Canadian businesses have had to become far more sensitive to issues related to culture as part of their ordinary operations. As we look at current trends, the need for an awareness of local cultures and how business is done is going to grow dramatically.
Do you see particular areas where culture seems to matter most to Canadian businesses working internationally?
There are a whole range of areas both in terms of how to make sales and to promote our products and services abroad. For example, the development of relationships is absolutely key. I think the North American business ethic is you go in with good quality products at the lowest possible price and that's going to be the winner. In much of Asia, the tradition has been that you develop and nurture relationships. Price is important but it may not be the sole determining factor of whether a company will get a contract. Similarly, as we build partnerships with companies in other countries, it's very important for us to understand their business culture and to understand that we can't expect the rest of the world to simply do business on our terms.
Canadian businesses – particularly the larger ones, but increasing the small and medium-sized operations - have been operating internationally for many years. How do you think they stack-up in terms of preparedness to work internationally?
It's a work in progress. So much of our trade has been focused on the United States with a business culture very similar to Canada's, and moving overseas represents a significant cultural shift for Canadian industry. Some Canadian companies have had long histories overseas and they are used to dealing with a wide variety of local cultures. They're highly adaptable in terms of how they respond to local needs instead of simply imposing a Canadian model on their partners, customers, and suppliers. For other companies, it represents a first for them to look beyond North America and to recognize that we have an obligation to adapt to the needs of our customers and our partners.
It would seem that adaptability in terms of processes and approaches is a best practice. Are there other things you've seen Canadian companies do that have helped them become successful internationally?
When you're looking at production, for example - a Canadian firm is trying to establish a plant in China or in Japan - one of the keys is to develop local management and have genuine indigenous management on the ground and running the operation. The first inclination of a company is to impose a Canadian model wherever they go and to send Canadian management to ensure that things are run to Canadian standards. The most successful companies are the ones who rapidly make the transition to having local management and local partners; to understanding local conditions and cultures. I recently attended a seminar on investing in Japan. They had a number of Canadian companies who were currently doing business in Japan and one of the senior executives pointed out that the first step of sensitivity is to find a business person in Japan to run the operations, and who speaks English very well to facilitate good communications. However, he said we tend to put a greater emphasis on the capacity to speak English than on the business ability. He said that you know that you've arrived and have been really successful when you've got an operation where it is not that important that people speak English but that they are very good, locally-hired business people. I thought that was a very insightful point and that is a major challenge. It is still a scary experience to open an operation on the other side of the world in a culture that is very different than your own, with a very different legal system and very different traditions, and obviously the inclination when you do that is to keep a very close eye on the operations and to try to ensure that the operations are as familiar as possible. But that may not be the best business model to follow. What you want to do as soon as possible is to localise the operation and to make sure it is part of the community and reflects that culture and their standards in a way that is consistent with the corporate culture, the Canadian traditions and the Canadian way of doing business.
So we're talking compensation approaches with employees, benefit packages, and the nature of the relationships they maintain with their suppliers?
Exactly. We often have the debate about why are we doing about 80-85% of our export business with the United States? Why aren't we doing more with the rest of the world? There are a variety of reasons for that. The first is that this is the richest market in the world and we still haven't tapped-out the potential of the US market. The second reason is proximity: you don't have to maintain the logistical supply lines that you have to maintain in the rest of the world. The third reason is that the business cultures are so similar that it's possible to get on a plane today, fly to Cincinnati for lunch, take your sample case with you, sign the order and fly home for dinner. And you're doing so with somebody who speaks the same language, shares the same business culture and traditions, with a legal system that is very similar to Canada's. Obviously, the same doesn't apply if you're going into Thailand. It's much more complicated. But at the same time, the potential is enormous for a Canadian business that justifies the effort to do it right. People often ask me if Canada should be growing its business with the United States or growing its business with other countries, and my answer is always "Yes". I've never seen it as a zero-sum game; why can't we do both?
Do you think that our cultural diversity here in Canada might give us a competitive advantage when working in other markets, say in Asia for example?
I see great potential in Asia both as a supplier and as a market for us. We should use it both ways. It' s worth noting that when I was in China with a trade delegation last fall, I spoke to MBA students at three universities while I was there. I asked them "What is the most widely spoken language in Canada?" Of course they said English. Then I asked what they thought the second-most spoken language was and most of them knew it was French. When I got to the third most widely spoken language, they were surprised to hear it is Chinese! It's a bit of a hobby horse of mine, but if you're looking for a key competitive advantage that we have not exploited in Canada in any systematic way, it is the international diaspora.
We have the first generation from every country of the world that speak the language, understand the culture and who have a network of family, friends and business associates back home, and who by their nature are entrepreneurial. That's what brought them to Canada; to build a better life. And yet we have no systematic strategy of building on that incredibly rich human resource. My argument would be that part of our strategy when we are looking ahead, say for the next fifteen years, would be to build on the skills and networks of new Canadians who have brought with them an extremely rich range of assets that we can use to develop our international business relationships.
Are there places where Canadian businesses can tap into those resources, if you will, beyond trying to recruit foreign students from Canadian universities?
Not sufficiently systematically. Canadian companies are doing that – recruiting these graduates to work for them in their countries of origin – but not enough in my opinion. I think the government should be developing policies that make it easier for international students to stay in Canada after their studies. In my view, part of our economic development strategy for the future should be to figure out how to attract the best and the brightest to choose Canada as their home and place of business. Particularly now when we see other countries closing their doors and making it more difficult for international students to come in, more difficult for business people to emigrate.
How do you see the role of the CME in all of this?
We feel we have a vital role in many ways. The first is educating and providing tools to Canadian businesses thinking about going abroad, or who are looking for suppliers abroad. In that's a significant evolution in CME where every manufacturer is also an importer - they're sourcing from around the world. That's different from many years ago. Today, a critical element for Canadian business is how to tap into global supply chains that are going to provide me with high quality inputs at the lowest possible price. So education first of all; then helping people make contacts using the networks that CME has with sister organizations around the world. Another role is to work closely with governments at all levels making sure that policies are supportive of Canadian business operating internationally. Finally, doing outgoing and incoming trade missions and helping to put people together with business partners in successful relationships.
What advice do you give to Canadian companies who are looking to expand in foreign markets?
Number one would be to do your homework. Make sure that you've properly researched the market you're looking at; researched the way in which business is done, the competitive environment, researched who your partners can be on the ground. The second thing is to ensure that you have people on the ground, either from Canada or locals, who understand the conditions in-country and can operate well on the ground. Thirdly, it takes time to build relationships and businesses and unless you're prepared to make that investment of time and money, you will not be successful.
Having worked and travelled internationally, what is your sense of how Canadian business is perceived internationally?
As Canadians, our reputation is universally good and this is a competitive advantage. People believe that we are ethical and that we come to the table with clean hands. So there are doors that are open to us that may be closed to businesses from other countries. However, a major hurdle to overcome is the perception that Canada is a lovely country of wide-open spaces with beautiful lakes and mountains, but when it comes to business, we should talk to the folks south of us. When I was in China, it was put to me pretty directly by a Harvard-trained Chinese in a senior position: "When we look at Canada we think of a nice place to visit if you can afford it. When we think of business, we think of the United States." There's a major challenge to ensure that people know that we're a high technology nation, that we have a strong industrial base, that we have a range of products that are world-class. And that we have the sophistication to be able to serve international markets.
Is it possible that Canadian business might underestimate the effect of the cultural differences between Canada and the US?
Whether it's in business or in government relationships, I think the most dangerous misperceptions that we have in Canada is that the Americans know nothing about us and we know everything about them. We tend to fall into stereotypes about the United States. The US is an extremely fast-changing country with an enormous range of political and social cultures. It is an extremely diverse country and for some reason we tend to think of it as a monolith. Even on the issues of 9-11 and its impact. Polling in December of 2001 showed that Canadians were saying that what happened in September was a terrible thing, but now we should get back to the previous agenda and get on with our lives. This was an event that profoundly shook and changed the American psychology. We have no doubt, as Canadians, that when we send our kids off to school in the morning that they'll be coming home that afternoon. When you go through the sort of experience that Americans have, and you don't have that certainty as a parent, it changes your world view in every respect. Security suddenly became of vital importance to a degree that Canadians didn't fully appreciate.
That's just one example but there are many others as well. We have very different political systems that reflect very different cultures. It's interesting because the argument was made as we adopted Free Trade that we would somehow inevitably be assimilated into US culture, that the differences between us would simply disappear. In many ways polls show that at a sociological level, the differences are growing. It's important for business people to understand the market that they're going into and the first thing they have to do is assume that maybe we don't know everything we thought we did. It's surprising to me to see in Canadian post-secondary education, how little emphasis is put on understanding the American political and business climate.
Perhaps because of our proximity, and on certain levels our similarities, we think that we have our finger on the American pulse when in fact we do not understand the deep underlying culture?
Yes, and in fact it's interesting when you talk to Canadian executives that have been working in the United States, they'll tell you that they detect a significantly different business culture between the two countries. We've been tremendously successful under Free Trade in terms of selling products and services into the US, but in terms of establishing retail outlets on the ground, we've been far less successful over the years. This speaks again to the differences in our business cultures.
Perrin Beatty, thank you for this interview
You're very welcome.