6 reasons why culture is important when doing business?

Seeing the errors and difficulties of my own company and many others doing business in Brazil and other parts of the world, I wanted to articulate some of the points of why it’s so important to understand the cultural context of the business environment one is in. This is something that I think most business leaders spend hardly any time on (until it’s way too late..)

I decided to share here the following text I wrote with some ideas I would like to pass to our senior management.

Business fundamentally depends on people. Being global and acting local requires understanding local vs. international cultures and adapting your processes and mindset

1. Investments in new parts of the world: – we need to understand the local socio-political context and current and future demands of stakeholders (ex: government officials, communities, NGOs). Plus, greenfield in new parts of the world, requires hiring and training new employees, that may have completely different needs and levels of education/reasoning than your normal workforce (especially in areas of low development index).

2. M&A: many M&As fail because of cultural clash that prevents integration, ex: big traditional company acquiring an innovative lean organization – different objectives, ways of doing things! Cross-border M&A is even more challenging because of the institutional risks, difficulties in retaining talent as a foreign entrant, difficulties in understanding the needs of the local employees.

3. Communication: different cultures communicate differently. This impacts our day to day at work: language barriers, communication styles. These cause difficulties in executing strategies and manage when communication doesn’t flow. Ex: Headquarters vs. international subsidiaries, Corporate office vs. Operations.

4. Managing workforce: different cultures are motivated by different incentives. Financial compensation (anglo-culture) vs. work environment: sense of family with colleagues/relationship with superiors (latin cultures). One’s brand may be strong as a large company in Brazil but it’s not so abroad, so something like “proud to be an employee of company X” may not be sufficient to attract and retain talents in another country where this company is unknown.

5. Execution: Corporate culture impacts the quality and agility of decision making: Lack of trust creates bureaucracy as control mechanism, which creates inefficiencies, duplication, lack of accountability. Focus on job creation (key to dealing with governments) and overall legacy of a state-company, diminishes meritocracy and increases favoritism. Both impact efficiency, costs, time, and productivity. Ex: performance of state-owned companies before and after they were privatized or performance of state vs. private companies (ex: Petrobras vs. Exxon)

6. System effect: organization’s behavior mirrors the behavior and attitude of its leadership. Highly efficient and successful companies have a cultural identity, that can be described by things such as efficient processes, good communication, meritocracy, investment in human capital, etc. The CEOs of these companies are well known because ultimately, charismatic leadership is what shapes the strategy and success of the organization. Example: GE & Jack Welsh, Apple & Steve Jobs, InBev & Carlos Brito, etc..