Why is cross-cultural management a success factor in business?

What has the COVID-19 year 2020 brought for Vietnam? Supply chains have been disrupted, foreign direct investment has decreased, beaches and cities suffer from a lack of tourists and international business contacts are limited. Even though Vietnam has coped relatively well with the crisis, it was clear to all: globalisation is a fact.

Already in the years before, international contacts between nations, companies but also people have increased. This will not change in the new year 2021, when hopefully normality will return. Where people of different origins come together, cultural misunderstandings can occur. Intercultural management deals with how to address these intercultural encounters. The aim of this series of articles is to find out how cross-cultural management (CCM) can become a success factor in business in Vietnam.

Areas of Cross-Cultural Management (CCM) in Business

In today's world of globalisation and increasing international contacts, it is essential to consider the international dimension in business communication. The following are some examples and questions in the field of Marketing and PR:

·         Corporate Identity: Does the old Corporate Identity of a traditional French company fit to the Vietnamese Market?

• Corporate Branding: Does the existing branding need to be adapted in Vietnam?
• Corporate Reputation: Is the reputation in Vietnam the same as in the home country Italy?
• PR: Is it necessary that the PR manager in Vietnam speaks the local language or is English sufficient?
• Investor Relations: What information do US investors need from a Vietnamese Exporter? And how to address them?
• Corporate Social Responsibility (CSR): What are the most promising regional or national approaches for Vietnam?
• Internal Communication: What are the Vietnamese employees of a British firm are interested in?
• Crisis Communication: What response is expected in the host country Vietnam in case of a crisis?

Globalisation brings new challenges for international managers, not only in these above mentioned areas. Thus, cross-cultural management is becoming increasingly important in this environment. It is also a success factor for companies that want to survive in this international minefield.

Between 2009 and 2012, I was in the middle of some difficult intercultural waters myself. As Head of Business Development Vietnam of a Western bank, I was responsible for our participation in a Vietnamese bank: A professional and partly technocratic, European banking culture met a family-oriented, Vietnamese banking culture....  I experienced a lot and learned even more. But more on this in the following:

Intercultural stumbling blocks for foreign banks in the Vietnamese banking market of the early 2000s

In the mid-2000s, many foreign banks discovered their heart for the Vietnamese banking market. Banks such as HSBC, Banque Paribas and Deutsche Bank sought and found cooperation partners in Techcombank, Seabank and Habubank, in which they heavily invested money and knowledge transfer. A few years later, many commitments in the Vietnamese banking sector came to an end.  We do not want to speculate about the reasons at this point. - Certainly, the balance sheets and P&L of the Vietnamese partners had been intensively investigated prior to and during the investment. But did the foreign partners also check whether the business cultures fit? Was there a very intensive and equivalent cross-cultural due diligence (CCD)? The latter may be doubted, at least in part.

Whereas, for example, in the past a due diligence was the key factor in mergers and acquisitions, today it should be complemented by cross-cultural due diligence (CCD). CCD examines whether the cultures of both sides fit together and what can be done to match both with the aim of achieving mutual business success. CCD consists of a cultural analysis to find out where there are similarities, similarities and differences that have an impact on the cooperation and the accomplishment of strategic goals. There are several cases more in Vietnam where this CCD was neglected and the strategic cooperation failed precisely because of it, although the “regular” due diligence had given the green light.

But what is culture?

Culture in this context can be defined as the characteristics and knowledge of a specific group of people, including religion, language, social habits, art, music and attitude to life. Culture is like an iceberg, of which only the tip is known to be visible and most of which is under the surface. The US social scientist Edgar Schein distinguishes three levels of (corporate) culture:

1. The level of “artifacts”, i.e. the visible organisation with its structures and processes These can be seen at first glance, such as the Vietnamese Chua Vinh Nghiem as example of architecture, or the particular way of greeting in Thailand by the “Wai”, respectively the hugging among friends in France. Here it is still easy for the outsider to spot culture and its differences, as it is obvious. But is this all? But is this knowledge of the surface enough for a Spanish businessman to understand his Vietnamese partner, and vice versa?

2. The “espoused values”, which include strategies, goals and corporate philosophies. These are not immediately visible, but can be found in the published company guidelines or public statements for example. They are located below the surface, but can be seen when looking closely. And here again the question: Is it sufficient to have looked at all the documents of the Vietnamese partner company as a US business owner?

3. The “basic assumptions/truths”. This is where you enter the terra incognita of culture, which is not immediately recognisable and which requires an in-depth study of the culture. It is the level of the subconscious and the perception of the environment. If a Vietnamese head of a provincial authority understands what a German medium-sized family business needs deep down inside, then misunderstandings can be avoided and a truly sustainable and long-term relationship can be built for mutual benefit.

Culture manifests itself in different areas. These include (i) the professional culture, e.g. of a pilot, (ii) the departmental culture, e.g. the demarcation between the sales and the controlling department, (iii) the corporate culture, e.g. the differences between Citybank, Agribank and Vietcombank, or (iv) the culture of a generation, e.g. Baby Boomer vs Millennials.  Cross-cultural management goes beyond this and deals with the culture of a civilisation, a region or a country.

The positive role of culture and the knowledge of CCM in business

Cultural differences need not always lead to clashes or confrontations. This is where cross-cultural management comes in to provide support. An important prerequisite is not to see culture as something disruptive or as something that obstructs business success. On the contrary, culture plays an important role in business life. It creates order, identification, motivation, coordination, integration and legitimation. For the individual person, culture - once internalised - provides predictability, reliability and patterns for identification. It helps to create a team spirit and facilitates communication, to name but a few advantages. Of course, a specific culture can also have negative effects. These include isolation and separation, pressure to conform, refusal of criticism, structural conservatism, arrogance or simply "groupthink". This is where aspects of organisational behaviour and cross-cultural management overlap. The latter covers many practical areas and issues, such as

• Leadership, authority and hierarchy: How does a Vietnamese director see himself as a superior? Does he tolerate open opposition from his staff when he is at risk of making a massive mistake?
• Organisational cultures and organisational behaviour in a broader and narrower sense: How does the typical Vietnamese family structure of a medium-sized production company in Thanh Hoa fit in with the profile of the professional US company looking for a joint venture?
• Communication methods and systems: When do the German employees of a Vietnamese Bank in Frankfurt/Germany prefer to be invited to a meeting or is information by e-mail sufficient?
• Motivation and team building: What can a French expat do to motivate his employees at the company's branch in Can Tho?
• Decision making: Are decisions more likely to be discussed and voted on in the board of directors of a German company or does the Vietnamese chairman decides alone?
• Conflict resolution: How can a Dutch Chief Country Officer criticize one of his Vietnamese managers in the Da Nang branch, who has made a clear mistake in dealing with a customer’s complaint?
• Definition of business success: When negotiating an Austrian-Vietnamese FDI project, where are the red lines for a minimum consensus on both sides?

All these issues, which are related to cross-cultural management, can have a significant impact on the individual manager, but also on the entire company, both operating in a foreign cultural environment that is strange for them. Even within one's own national and cultural borders, dealing with people is not easy. Here, in an intercultural context, any actions are even more complex.

Language barriers, a lack of confidence in compliance matters and in dealing with bureaucracy, a missing local network, insecurity about partners and difficulties in finding qualified and trustworthy employees, these are all problems that a Westerner can face in Vietnam. On the other hand, Vietnamese who are dealing with people or companies from abroad for the first time can encounter similar difficulties. Knowledge of cross-cultural management helps to overcome these hurdles.

In the following parts, different cultural models will be introduced and concrete examples from the field of cross-cultural management will be given. The aim is to provide a practical overview of this topic, which is becoming increasingly important in the course of globalisation and cross-border business activities.