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It is important to find the right balance between standardization and national diversities for overseas businesses to grow.

Should National Differences be Criticized or Celebrated When Doing Overseas Business?ARTICLE

By Frances Coppola

The dream of any international business is to sell products worldwide without the need to adapt them to local laws and customs in the countries where they sell. Doing business overseas is much easier if everyone works to the same standards. Unfortunately, despite moves towards harmonization of standards in the Uruguay round of the General Agreement on Tariffs and Trade (GATT),1 doing business overseas is still complicated by differences among countries of law, regulation and custom.

Take automobiles, for example. In Germany, standard design puts the driver on the left-hand side of the car, since they will be driven on the right-hand side of the road. But in the U.K., automobiles are driven on the left-hand side of the road. Drivers prefer to be positioned on the right-hand side of the car, since that gives them better visibility. To sell into the U.K., German manufacturers must produce automobiles specifically adapted for left-handed roads. For them, this is a cost of doing overseas business. But it is well worth it, since U.K. drivers like German cars. According to the Verband der Automobilindustrie, the German automobile manufacturers’ association, German manufacturers have a 50 percent share of the U.K. market.2

Subtle Differences Among Countries Affect Overseas Business

Differences of language can raise the cost of doing overseas business, too. Negotiating a business deal is all but impossible if you only speak English and your potential business partner only speaks Mandarin. Worldwide, there is growing use of English as the language of business. But not everyone is fluent, so important subtleties can be lost in translation when one side isn’t. Negotiating a trade deal often requires the services of translators.

Even when overseas business partners themselves speak English, their customers might not. Instruction manuals for products may have to be produced in multiple languages. The Swedish firm IKEA solved this problem by producing instructions for their flat-pack furniture entirely in pictures.3 But this is not possible for essential safety and technical information in technology products such as computers and smartphones.

Then there are cultural differences. These can be quite subtle, and they affect all parts of the overseas business relationship. Advertising, for example, may need to be adapted to work in different countries. Advertising campaigns that work well in the U.S. may not work at all in the U.K. Campaigns that make assumptions about lifestyles based on how people live in the U.S. can be incomprehensible to a Japanese audience.

Lack of international agreement on the status of educational qualifications can also impede overseas business, particularly in service industries. If, say, an accountancy qualification gained in Gabon is not recognized in the U.S., its holder cannot sell accountancy services to U.S. firms. Lawyers and tax accountants particularly suffer from these kinds of barriers, since countries are intensely protective of their national laws and tax rules.

Perhaps the biggest area of contention over international standards is in intellectual property. Patents granted in the U.S. are not recognized in other countries, opening the door to what U.S. firms hoping to sell patented goods in other countries might regard as unfair competition from copies. Trade deals such as the Trans Pacific Partnership aim to ensure that patents granted in one country are recognized by all countries that are party to the agreement, thus encouraging overseas business. But since in effect this means enforcing one country’s patent law in other countries, it can be seen as overriding national laws.4

Protectionism Threatens Overseas Business – But National Differences Create Opportunities

Countries can be fiercely protective of local standards, particularly when they are suffering economic difficulties. Raising barriers to overseas business is sometimes seen as a solution to a domestic slump. If we shut out foreign companies, the thinking goes, domestic businesses will grow and thrive. Impeding overseas business does not have to mean imposing tariffs; it can simply involve tightening local regulations and adopting policies that favor local businesses over foreign ones. Even if policymakers eschew these measures, encouraging local business with campaigns such as “Buy British” can indirectly dampen overseas business.5

The rising tide of protectionism about which the World Trade Organization (WTO) has recently expressed concern mainly arises from countries reinforcing local regulation and encouraging local rather than overseas business.6 This can be bad news for service industries, since overseas services often depend on favorable regulation and a level playing field.

Of course, differences among countries can be advantageous for overseas business. Marketing companies and advertising agencies, for example, benefit from cultural differences that make standardization of marketing approaches impossible. Language services – including simultaneous translation facilities – do very well in a multi-language world when overseas business is booming. And where would the global food and restaurant industries be without cultural differences in taste and cooking practice?

Above all, those who work to oil the wheels of international trade – negotiators, lawyers, accountants, supply chain consultants and financial services providers – benefit from the fact that not all differences can be ironed out.

The Takeaway

Many international businesses would love the world to be fully harmonized. Global standards in property rights, consumer protection, educational qualifications and financial regulation would lower costs and reduce complexity in overseas business. So would a single global currency, a single global language and a world government. But national differences also create overseas business opportunities, challenging businesses to diversify and encouraging cross-cultural markets to develop. The challenge is to find the right balance between standardization and diversity.

Frances Coppola - The Author

The Author

Frances Coppola

With 17 years experience in the financial industry, Frances is a highly regarded writer and speaker on banking, finance and economics. She writes regularly for the Financial Times, Forbes and a range of financial industry publications. Her writing has featured in The Economist, the New York Times and the Wall Street Journal. She is a frequent commentator on TV, radio and online news media including the BBC and RT TV.

Sources

1. “The Uruguay Round,” World Trade Organization, undated, © 2016 World Trade Organization;https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact5_e.htm
2. “Wissmann: German car market grows vigorously,” Verband der Automobilindustrie, 4 July 2016, © VDA 2016; https://www.vda.de/en/press/press-releases/20160711-German-car-market-grows-vigorously.html
3. “Assembly Instructions,” Ikea, undated, © 1999 - 2016 Inter IKEA Systems B.V.; http://www.ikea.com/ms/en_US/customer_service/assembly_instructions.html
4. “Intellectual Property – The Trans-Pacific Partnership,” Official Medium blog of Office of the U.S. Trade Representative, 5 November 2015; https://medium.com/the-trans-pacific-partnership/intellectual-property-3479efdc7adf
5. “Buying British? Look for this new Made in Britain logo,” This is Money, 4 January 2015, © 2016 Associated Newspapers Ltd; http://www.thisismoney.co.uk/money/news/article-2533876/Buying-British-Look-new-Made-Britain-logo.html
6. Report on G20 trade measures, World Trade Organization, June 2016, © 2016 World Trade Organization; https://www.wto.org/english/news_e/news16_e/g20_wto_report_june16_e.pdf

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