Benjamin Franklin once famously stated, "I didn't fail the test, I just found 100 ways to do it wrong." This witty admission has significant implications in today's business-centric society and resonates with CEOs of major multinational corporations across America for one reason alone: the lack of cultural diversity. Apart from the inevitable language barriers that the vast majority of decision makers doing business overseas face, the unfamiliarity of the cultural, geographic and social nuances of those countries with which they do business has a profound and direct impact on the growth and success of the company.
Many of the world's most lucrative corporations that have sustained notable success in the United States have done so by coming to understand American culture and addressing the needs and desires of the American population. For example, one of the highest grossing periods for consumer-based corporations in the U.S. is the week before Halloween. This Americanized holiday yields high revenues for stores across the U.S. such as Target and Walmart, but on a global scale, the numbers fall short in the month of October.
Companies often do not net the same results when they implement similar strategies abroad that may generate success domestically. It is imperative that companies seeking to expand internationally acquire a comprehensive understanding of a foreign culture, rather than relying on translators and interpreters.
As a result, many prominent, U.S.-based corporations such as Walmart, The Home Depot and Best Buy have run into roadblocks as they entered the multinational business market. Walmart has received widespread acclaim for its redefinition of supply chain management and has developed a presence that remains so ubiquitous in American culture that it is almost impossible to cross paths with someone who has never fattened the pockets of the Walton family. From its humble beginnings as a small discount retailer in the little-known town of Bentonville, Arkansas, a massive corporation has risen - although the road to international profitability was not a smooth one. Case in point: the company's failed attempt to become a meaningful player in the German market in 2006. In its first foray into Europe, Walmart experienced little success for several reasons, all which could have been avoided by hiring someone with a keen understanding of the German way of life.
For example, Walmart stocked about three-million dollars worth of pillow cases that were unsellable in Germany because they did not fit German pillows. The company also failed to take into account the fact that many Germans are accustomed to buying their groceries daily at local farmer's markets and therefore may not appreciate the store's produce department.
Overall, German customers were largely unwilling to adopt Walmart as their all-purpose shopping destination. Instead of commanding a large share of the grocery market as they do in the United States, Walmart lost out to local discount chains, which tended to be cheaper as well.
Another example is The Home Depot. In 2006, the do-it-yourself retailer decided the time was right to open their doors in China. Six years later, a multi-billion dollar 'oops' happened. What the company failed to gather was that the Chinese have little interest in doing-it-themselves when it comes to home improvement and often prefer hiring a professional to do-it-for-them. Again, this obstacle could have been foreseen by due diligence or completely avoided with a little Chinese street smarts.
Mr. Nardelli, then-CEO of Home Depot who green-lit the blunder, was not alone in misjudging the Chinese market. In early 2011, Best Buy decided to shut down operations after it became painfully clear that Chinese consumers were using the stores as showrooms to find their desired high-tech electronics before going to locally-owned competitors and buying those goods for a better price. Best Buy could not compete with local stores on price because they had not been able to develop guanxi, the relationship networks of influence prevalent in Chinese business and politics, with their suppliers. While these are just a few examples, the truth is that the history of international expansion is littered with companies who were ill prepared and improperly positioned to compete.
So getting back to basics, why are these examples relevant? The answer: because they all demonstrate the need to understand foreign cultures so that companies can best position their product offerings in new markets. And few things, if any, are as vital to a culture as its language.
Without language, communication between individuals is reduced to its most primitive form. Imagine picking up the phone and on the other end was a customer overseas that only spoke a language completely unfamiliar to you. Forget trying to convey anything business-related, you would struggle just introducing yourself. In this way, language serves as the foundation from which more complex and advanced interactions can occur.
Unfortunately, learning a language is not as simple as learning the words. Certain words used in a language may have one meaning while, those same words used in a different language may have a completely different meaning. Take for example, Pepsi. When Pepsi entered the Chinese market with its slogan "Pepsi Comes Alive," the company was unaware that the English connotation of the slogan did not translate properly into Chinese, literally suggesting that their product "brings your ancestors back from the grave." Suffice it to say, the company was forced to alter its tagline.
To make matters more complex, there is a strong interplay between culture and language in most cultures. In the United States, if you said you were going to watch football, you would most likely be watching large men trample each other as they attempt to score a touchdown. However, in just about every other country, this sport is not popular. When one speaks of football, he or she would be referring to what Americans call soccer.
Extrapolating this simple example into a business context, imagine a sales manager at a sporting goods retailer in the United States calling their manufacturer in Europe and ordering thousands of footballs to replenish their inventory. Trouble arises when the shipment arrives and the balls are round instead of oblong! This is obviously a very simplistic portrayal of the pitfalls of miscommunication due to language and cultural barriers, but the implications should be apparent nonetheless.
As the world becomes increasingly interconnected - we can go to sleep in New York and wake up in Rio de Janeiro or drive our German car to a bar to enjoy a beer imported from Belgium - the possibility of success, and failure, becomes ever greater. So as American companies continue to expand their operations internationally in hopes of growing their addressable market and pleasing their seemingly insatiable Wall Street critics, it would be wise for them to pause and consider the multitude of potential risks that await them on foreign soil.
Much like we are taught basic addition and subtraction before calculus, we must learn the native language before we can understand local idiosyncrasies. And it is often the understanding of these very idiosyncrasies that delineate success from failure. Whether it is steering clear of a country in which a business is ill-suited to compete or becoming acclimated with cultural nuances, it behooves an organization to commit the time and necessary resources upfront to gain a comprehensive understanding of the culture in their new market, starting from the bottom-up. Who knows, maybe if we all spoke the same language, international business wouldn't feel so... foreign.