Cultural Diversity in International Business (part 1)

The Importance of Cultural Diversity in International Business Development.

[4-min read]

Cultural Diversity in International Business Doesn’t Really Matter…

“When you are expanding your business internationally, cultural differences do not play a role. The Dutch like Italian Pizza and the Italians like Dutch football.”

With this unforgettable quote, the former CEO of KLM dismissed the cultural differences between the Italians at Alitalia and the Dutch at KLM Royal Dutch Airlines in 1999.

The result was that this international merger ended in a financial and catastrophic failure for the Dutch: no less than €250 million had to be paid to the Italians for breaking up a contract between the two companies.

Let alone the number of Dutch “would-be expats” who already had sold their houses in the Netherlands and had bought a place to live close to Rome.

What is Cultural Diversity in International Business?

It is exactly what it is: “Cultural Differences in International Business Development“: develop your business internationally and pay attention to cultural differences. This includes international alliances, partnerships, or mergers.

A keyword here is “development”. You don’t just hop across the border and work internationally. You can’t just buy a fax and are an international company (yes, I still know what a fax is).

But you get my point; too many organizations have tried it: Let’s team up with a company from another country and we’re international and we’ve expanded our market.

Well, a simple Google search on failed (international) mergers and acquisitions will tell you the contrary: the majority fail. Or at least will have a difficult marriage.

Why is Cultural Diversity in International Business Important?

Watch this short (6-minute) video about how and why the American company Starbucks failed in (the also Anglo-Saxon country) Australia.

It just goes to show that what works in comparable countries on a cultural level, are no guarantees for success. At the time of this writing (November 2020), Starbucks has (only) 39 locations in Australia…

As I stated earlier, just the fact that you can send emails to a foreign email address doesn’t mean your international business will be a success. Mind you, on the other side of the email, there is someone from another culture.

And, given our 20+ years of experience, as soon as you want to develop and/or expand your business across your own borders, you will bump into cultural differences. Whether you like it or not.

You can deny gravity, but that doesn’t make it go away. The same holds true for international business development: You cross a border? Then you will encounter cultural differences (mind you I talk about differences, not necessarily of cultural difficulties, although they are more often than not part of the deal).

The basic message is: come prepared. Know what you’re doing. Understand your new market. Know why you’re doing what you’re doing and most of all understand your own culture in relationship to the “new” culture you’re trying to expand your business into.

Some Examples of Cultural Diversity in International Business

There are plenty of examples of international mergers and acquisitions that in the accountancy room made perfect sense, but in the real world, they turned out to be different.

The list of companies is a little less important (you can find those online). The point here is that most of the international M&As make sense if you look at them from a financial point of view (profit, economies of scale, procurement, etc.).

However, what the accountants come up with is not necessarily a reflection of what happens out there in the real world.

When it comes to expanding your business internationally, many people get what they ask for, but not what they want. And there’s a huge (!) difference between the two.

What are Your Benefits?

If you prepare well, and not only operationally and/or financially, but primarily culturally your benefits are plain and simple: You will save time and money.

Cultural Diversity in International Business; How?

People will be better prepared and hence less frustrated (ever calculated how much it costs to replace a frustrated colleague who leaves because of cultural differences?).

Processes will run smoother, faster, and with less frustration, thereby saving you time, which often translates into money.

So, if (one of) your objectives is to either return a profit or increase shareholder value, you better invest in preparing yourself for your next international business development.

What to do Next?

Simply put: stop and think.

Who will you be dealing with? What other cultures will be involved? All the legal and labor stuff you can easily outsource to a local expert.

But getting yourself, ready for this is something you cannot outsource. So, Cultural Differences and International Business go hand in hand and you cannot leave that up to someone else.

Follow a course on how you and the “others” are different. Where can you expect the friction points? Knowing the “what” you’re dealing with will explain a lot of the “why’s” that are happening.

You can hear Chris and Peter talk about this subject here.

• Should you want to read more on how to adapt to a different culture, read this article.
• A follow-up article (Part II) can be found here. This article is written by Peter van der Lende
• What we can do for you can be found here.
• An article specifically focused on the travel industry can be found here.
• An article about “assumptions in international business” can be found here.
• An article on where you can “find” culture can be found here.

Keyword: Cultural Diversity in International Business on Culture Matters