Globalisation & localisation for a worldwide business: a complicated love story

cultural competence

Businesses operating in several markets must balance between the feasibility of centralisation and effectiveness of localisation.

This problem arises in all size companies getting international. Most managers in these companies find themselves struggling with different types of globalisation or localisation issues at one time or the other.

First, let's assume you run a small exporting business.

Typically you start with one export manager, who handles all export markets. When the business grows, you hire another export manager to handle some of the new markets. All the markets have their own needs and ways of working. The sales channels keep your managers busy with various requests that are important for the specific market.

In a real-world scenario, we know that you'd also be looking at your company's economic and managerial efficiency. Even if you understand that full country-by- country localisation and adaptation would be ideal to meet the exact needs of the market and its people, the demands on your resources are also significant.

We can identify at least two problems that arise here. To maximise efficiency and save resources, it makes sense to decide it is time to make policies for working with export markets and sales channel partners in those countries.

Now you have to determine if you want one policy or many policies?

Naturally, a centralised approach to sales channel support programs, for example, would look like a great option. But when you try to implement it, you quickly realise the centralised system you plan based on your own cultural background and how things work in one country won't work so well in the other countries.

The second problem arises at the next step. To avoid having too fragmented an approach and managing so many different markets separately, you feel that clustering them together would help. That would be meeting mid-way between full centralisation and single market adaptation.

Great. So now all you have to do is pick the nominator for clustering each country.

But what is a good nominator?

Most companies take a map and go for geographical clustering, where one manager is responsible for a particular geographical region and is expected to manage and lead the business within that cluster effectively.

In the following article, I'll explain the main reasons why this approach doesn't work very well and cover another way of clustering that will provide better results and still allow you to compromise between the two extremes of complete localisation and centralisation.  

What's the problem with Geographic Clustering?

If you are familiar with the world of cultural models, you may know that while clustering countries geographically looks very sensible, logical and easy on a map, there is very little justification for it functioning well.

Let's imagine you want to pre-cluster the global business world, for example, to the Western countries, Middle East, Asia, and so on, and then divide countries into smaller clusters of neighbouring countries.

The problem is, in the real business world, there is no universal Western or Asian management style.

Just look at some of the countries in Europe, such as France, Germany, Sweden, and the UK, and you will see four very different leadership and management practices and ways of conducting business.

It is crucial to understand that neighbouring countries can be respond differently to your operational principles, negotiation and managerial style. Thus, clustering countries into geographical regions is not always the best approach if you want to improve the performance of the managers in charge of these areas and your business success in those different markets.

One of the most interesting aspects of culture is that you can observe its effects without the need for expert domain knowledge other than the environment, the decisions made, and the consequences. So let's look at an example of geographic clustering.

Centralisation without considering culture can lead to disaster

This is a story a colleague from Hofstede Insights shared with me about clustering countries.

"In order to increase its shareholder return and create synergy the board of directors of a globally operating oil company decided to merge its local marketing, sales and service operations in the Netherlands, Belgium, Luxemburg, France, and Germany into one Western Europe Region, centralize all management and support functions in Brussels and only keep sales and (some) service operations in each country.

The HR Manager responsible for post-merger people integration knew about previous similar decisions at other oil companies and therefore explored best practices. Most competitors recommended not to integrate these country operations, because the cultural differences are too big. Despite this advice the board decided to integrate.

With the support of one of the big 5 consulting firms structures, (IT) systems and processes were centralized, aligned, integrated, newly developed, rolled out, and implemented. Large numbers of management, support staff, and sales-/service staff were made redundant or transferred to Brussels.

Within six months after the major changes turnover figures started to plunge. For example, in lubricants, the company lost 40% of turnover.

The analysis concluded that work processes and systems were not aligned with market and client practices, staff competencies, and cultural differences between the country operations.

Centralized payment terms didn't match local client practices; opening hours of centralized order taking weren't aligned with client opening hours. Clients walked away ‘en masse’.

A 360-degree management survey failed to provide reliable results i.e., bad performing countries scored high. Job rotation between countries didn't work in Belgium and France. Different management styles of regionally appointed managers lead to ineffective results i.e., hierarchical managers were ineffective in Germany, Luxembourg, and Netherlands."

So let's stop here for a moment.

When things go this wrong, we should ask ourselves what different interventions, models, and action steps will help us find solutions and fix the cultural issues?

Focusing simply on centralisation problems may seem shallow when we already discussed that global companies and smaller companies working in several markets have to consider managerial and economic efficiency.

I will share the conclusion of the case study with you in a moment, but first let’s talk about the most critical nominators that do work for clustering. To understand how to use these in your own business to solve similar situations, it’s best we look at how cultural clustering works.

What's the story with Cultural Clustering?

Let's think about our original scenario for a moment. To avoid problems with centralisation, you want your managers to be as effective leaders and managers as possible. You need to know what type of management and leadership style works best in the countries the person is responsible for.

But in the situation we just talked about, the countries in the cluster might not be very similar from this perspective. You need to be able to cluster countries by similarities in their culture to achieve this goal.

So how do you do that?

Huib Wursten's 7 Mental Images (7 MI) of National Culture model developed based on the scientific Hofstede 6D model is a clustering model designed to help you with this. It groups countries into 6 clusters plus one (Japan) that doesn't fit within any of the clusters.

The additional value to simple geographic clustering is clear: the countries are clustered based on cultural value dimensions in this model. This leads to countries with similar kind of cultural behaviour being clustered together. The cultural behaviour, on the other hand, is reflected in all business situations, for example:

Expectations for management and leadership style
Autonomy-control aspects
Approach to business planning
HR processes
Negotiation styles
Behaviour in meetings
Conflict resolution styles
Sales process
'Strictly business' or personal relationship building aspects

To give some typical examples, HR functions, customer service centres, and other regional centres are certainly all easier to manage within clusters where people have similar values and behaviour.

Clustering the world this way based on culture ends up being far more effective than clustering countries geographically.

One reason for this is simply that ultimately you are dealing with people (with similar social game rules), not "countries". So when the goal of clustering is to design systems for organisation and management for global businesses, a cultural model allows a manager to develop strategies that work well across the countries in your cluster.

Solving issues arising from centralisation with cultural solutions

Let's get back to the case study for a moment. So far, we saw why geographic clustering instead of cultural clustering can even lead to a disaster. So how can cultural clustering solve the issues?

What were the interventions?

All management layers and regionally operating professionals were trained in cross-cultural leadership and collaboration over a period of one year. These training sessions revealed surprisingly huge cultural differences on thinking and behaviour of people.

The Regional Board asked for further advice after clients starting flocking away simultaneously. We advised to re-structure operations according to the three cultural clusters in the region; to create an 'entente' structure instead of full centralization and restructure cross-cultural project management and job rotation.

We supported the Client in drafting a cultural neutral staff satisfaction survey.

We developed situational leadership approaches.

What were the results of the interventions?

Part of the centralisation was reversed in order to align with local cultural, market and competence differences.

Job rotation was limited only to countries were it proved to work.
The 360-degree assessment was abandoned and replaced by face-to-face interviews.

Within 8 months after the different interventions old revenue levels recovered, very often with new clients.

Due to mutual respect synergy flourished and new corporate and local process improvements and customer loyalty programs lead to 15% increase of net profit within 2 years after the interventions.

I want to emphasise here that management techniques or philosophy, practices, and skills that work well in one culture are not necessarily appropriate in another.

Why? Because management deals with a reality that is man-made. People build organisations according to their values, and societies are comprised of institutions and organisations that reflect the dominant values within their national culture.

Considering all that, cultural clustering of countries with similar values and behaviour works better than geographical clustering.

Curious what the cultural clusters in the 7 Mental Images model are?

Did you get curious about how the countries have been clustered in the 7 Mental Images model. If so, here are the 7 clusters:

Contest cluster (UK, US, Australia, New Zealand)
Machine Cluster (Germany, Austria, German Switzerland…)
Solar System (France, Spain, Northern Italy, Poland…)
Network cluster (Scandinavia, Finland, The Netherlands, Baltic states)
Pyramid cluster (Brazil, Russia, Turkey, The Arab Emirates, Morocco etc.)
Family cluster (China, India, …)
Japan (which does not fit into any other cultural cluster)

If you want to learn more about each cluster and the model, check my article on The 7 Mental Images of Culture to cluster the world for your business.

Interested in applying the model and its implications for finding solutions to your multicultural challenges? Book a call with me and let's talk about how we can help.