While we’re learning more about Asian style and culture as a result of companies shifting manufacturing and other operations to China and other Asian countries, there’s a big gap in our understanding about the allocation of capital, how Asians make decisions, and how they run their businesses that could turn out to be our undoing.
For more than two centuries, capital has traditionally flowed from European countries and the United States eastward to China, India, Indonesia, and other Asian countries. We in the west have become quite accustomed to sitting “upstream,” watching our money flow that way and assuming that our regulations, business practices, and cultural traditions need to be understood and adhered to in the course of our interactions with Asia. Our accountants, financial advisors, attorneys, and consultants — the glue that holds those operations together — are used to giving instructions. The structure of our organizations puts the majority of employees in the west and a much smaller assemblage in the east. More importantly, the hierarchy sits in the west and not in the east.
As a result, the conduit by which financial activities flow has become lopsided. We don’t know how to take instructions because we’re not used to being in that position. This inadequacy will become ever more evident and challenging as China and its neighbors increasingly transform into the originators of business activities and transactions and not simply the recipients of our directions.
How do the problems surface? In a few ways. We tend not to trust the orders we’re being given because we may not believe in the authority of them. We may be afraid we’re not going to get paid or that the business will really never materialize. That means we don’t respond with the same energy as when the instruction comes from a traditional — “western” — source. In turn, that leads to a behavior from a service perspective that’s not effective. We’re not preparing our people yet on how we expect them to act or how receptive they need to be toward this new client that’s thousands of miles away. In essence, we in the west need to learn how to be the receiver of instructions rather than the giver.
The problems are compounded because many companies in the east are just learning how to impose their wishes on American or European businesses. There’s a lack of experience about many approaches that needs to build up there in order to gain confidence that the instructions given will be responded to accordingly.
In my distant past, a mid-sized Finnish company was making a push to acquire a SE Asian business. I worked for the intermediary, a consulting firm that put together the proposal. Even though there was no interaction between us and the buyer, there was never a shadow of a doubt that our client wouldn’t be able to pay for the acquisition or honor the agreement or that it wouldn’t be exactly as we laid it out in the terms of the deal. We were all familiar with this type of proposition. It meshed with our expectations.
On the other hand, an experience I had in which an Indonesian company was acting as the buyer didn’t go quite as smoothly. There was a strong measure of skepticism on the part of the seller — with so much hesitation and ill will all the way through the deal-brokering — that eventually the buyer walked.
What are some ways we in the west need change to get our game on in this area? Although I don’t have all the answers, I can suggest some small areas for quick improvement.
One, we have to adapt to doing things in a different way. If we’re hosting clients or customers from Korea, for example, the expectations don’t stop at five p.m. when the training or meetings are done for the day They continue into the night. We must learn to take care of our customers in a much more holistic way to make their visit an experience that will stick in their minds. In return, we’ll get the business, because we’ve created a meaningful relationship.
Two, we have to become more cognizant of how “related party” transactions work. These are defined by accountants as arrangements between two entities that have some kind of relationship before the deal. The nature of businesses in emerging Asian countries is typically that of family conglomerates where entities are created to offer and provide internal services to other parts of the business. In addition, despite the substantial growth in the market, the number of large entities is small and everyone knows everyone. Furthermore, the nature of close knit family relationships transcends the business world. Trust is frequently based in these relationships which have considerably more ‘equity’ than the bank; lender relationship for example in the west. When bankers and financiers come to the east and start spotting related party activities everywhere, they put their accountancy hackles up and the deals grind to a halt…they are missing the point. Follow the laws and regulations, yes; but don’t make assumptions without getting a fuller understanding about what’s really going on.
Three, don’t be judgmental about the concept of the hierarchy. A few years ago, the team I was on went to dinner with an Asian client, and I sat down directly across from the head person. That was a cultural gaffe. But how the client handled it was much more interesting. There was no apparent eyeball rolling or display of distaste, but there was a lot of whispering. Somebody on the client side called over the waitress and quietly arranged to have a small table for two added at the end of our table. The person I was sitting across from stood and briefly left the table. When he returned, he took a seat to the left of his original seat and somebody with a rank more equivalent to mine took the seat opposite me. The person who was my senior on our team took the seat opposite the head person from the client company, thereby restoring the right shape and structure to our interactions. It happened quickly and wasn’t obvious.
While at the surface level it may appear to us that hierarchy makes dealings with Asian companies impenetrable, it’s not true. Everybody acknowledges who sits at the top of the hierarchy and those people at the different levels know how to operate and manage information flow and relationships in a way that allows things to get done in a normal way.
Suddenly, I as a westerner am not imposing my game on them anymore; they’re imposing their game on me. The companies that can understand and react to this shift in perspective most quickly and effectively are going to make a fortune. Everyone else will be left on the sidelines.
Categories: Change management, Complex transformation, Mergers & acquisitions
Tags: Cross border, culture, Decision making, human capital, innovation, Performance, planning, productivity
Inarticulate ramblings of a management consultant 
This is a concise and brilliantly pertinent piece. Should be syndicated in the Economist, FT etc
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Great article Ben! Personal connection and building relationships plays a very important part in conducting business in Asia. Expect some level of social interaction when developing your business relationships as Asian business culture and values are deeply rooted in building trust, respect, concept of “face” and patience.
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