As more businesses look to new markets for growth, overseas business is rising. While Canada and Mexico held the top spots for international trade with the US in 2015, China and Japan came in third and fourth, respectively, according to the US Department of Commerce.1 Those top four US trading partners make clear how international trade includes both culturally similar nations, like Canada, and countries that operate very differently in terms of regulations, consumer behavior and national customs, like China. Also clear, gaining knowledge about foreign culture and customs can positively impact any overseas business deal.
Cultural Misunderstandings Can Sink Overseas Business Deals
Cultural misunderstanding is the top reason why enterprises fail or underperform overseas, according to Evaristo Doria, Lecturer, International Business at J. Mack Robinson College of Business at Georgia State University and co-author of Oasis: In Search of Extraordinary Business Growth Overseas. People from different cultures have different expectations and values, so what may be acceptable in one country could put others on edge. For example, some cultures value punctuality very highly, while others are more flexible with time; and some cultures may be more focused on social relationships while others zero in on contracts and legal jargon, Doria explained in an email interview.
“In international business, it is fundamental to avoid judging other cultures using our own culture. On the contrary, it is important to learn as much as possible about the foreign culture and show sincere appreciation for it,” he said.
Some overseas business contacts may not know much about Western culture, while others may be well-versed in it – and vice versa. Still, it takes more than just knowing about broad cultural traditions and values to connect with overseas business partners – and to close deals.
Even with overseas business contacts who are familiar with Western customs, there is still room for misunderstandings, as Alex Moen, CEO of jdm Accessory Vault, learned in Korea and China. When inviting clients to business dinners in those countries, the person extending the invitation is expected to pay the bill – and imbibe with the guests. “Even if you studied up on the customs…when you meet in person, something will almost certainly catch you off guard at some point,” he said in an email interview.
“The first time this happened when I wasn’t expecting it, I did end up drinking way more than expected and came out with a much lighter wallet in the end, but I had a fun time and new customers and friends as well,” Moen said. Not every misunderstanding will sink a business deal; as Moen learned, being respectful, polite and willing to learn and adapt to local customs gains respect from overseas business colleagues. “Eat what they eat, drink what they drink, and do what they do, and it'll work out,” he added.
Businesses Neglect Foreign Consumer Behavior at Their Peril
It’s not just trading partners that companies need to worry about when conducting overseas business; consumer behavior plays a key role in the success or failure of an international deal. Consumers in one country or locale may be eager to embrace a new product or service, while others may be reluctant at best and downright hostile at worst. Craig Bloem, founder and CEO of FreeLogoServices.com, stresses the importance of learning about new markets and gauging consumer behavior as it relates to products and services, as well as how consumers prefer to conduct transactions. “Every market is unique,” he said, also in an email interview. For example, in Brazil, FreeLogoServices.com adapted its payment methods to accept a local payment service for offline transactions, removing a barrier to purchase.
Marketing strategies and website content also have to be adapted to overseas business markets, Bloem said. “We’ve translated our website into 10 different languages to make sure the process is seamless and easy to follow for all of our customers, wherever they are located,” he said.
Overseas Business Customs Include Local Laws
Finally, in addition to cultural norms and consumer behavior, it’s important for companies conducting overseas business to be aware of local laws. Every country, state, province, city or other locality has regulations that affect businesses. Running afoul of regulators can be a headache, but so can engaging in business practices that run contrary to US laws even if those practices are accepted in a foreign country.
For example, 39 percent of 2,825 respondents (from 62 countries) to EY’s 2016 annual fraud survey said that bribery and corruption were common in their countries.2 The respondents were senior corporate decision makers, mainly chief financial or compliance officers, general counsels and heads of internal audit. And already in 2016, the US Securities and Exchange Commission has issued 18 enforcement actions under the Foreign Corrupt Practices Act (FCPA) – tying the full-year record set in 2007 with four months remaining in the year.3 Not knowing the common business practices of foreign countries can cost more than just a deal – it could cost millions of dollars in sanctions and legal fees.
For enterprises conducting overseas business, not taking the time to learn about foreign customs, culture, consumer behavior or the legal climate can cost deals, goodwill and sanctions. Learning foreign culture and customs is prerequisite to overseas business success.