Ten years ago, a major American manufacturer of beer -- with successful joint venture operations in the U.S. and Europe – entered into a multi-million dollar joint venture with a large Chinese bottling and distribution company.   Market tests showed that the Chinese liked the beer immensely.  Recently, both sides of the joint venture threw up their hands in despair and decided to end the venture and “to never do business with each other again.”

“Just over sixty percent of all cross-cultural joint ventures fail. Over 27% of all expatriates return from assignment abroad prematurely.” These stunning recent statistics -- compiled from various sources by The Economist in their Globalisation Trends Report – immediately raise the question: “Why?” 

Indeed, why should such a high percentage of Chinese, American, German, and British corporations, each successful enough in their own countries to have the vision, resources and business skills to want to enter into a cross-cultural joint venture, fail in their attempts, while a smaller portion succeed admirably?

Another American company, Pepsi, spent about the same amount of time and money as the American beer manufacturer with a Chinese partner in developing a market for its soft drinks in China, and the results are visible throughout China today:  Pepsi is a well-known, well-liked beverage throughout the country.

What distinguishes the second company from the first?  The answer is to be found in one phrase:  good cross-cultural preparation. Key features of national, regional, corporate and even professional culture can be vastly different from one country to another, even from one company to another.

In the Pepsi case, both sides had taken the time to learn each other’s “cultures.”  For example, the executives at Pepsi had learned the importance of patience in dealing with the Chinese, while their Chinese counterparts had learned about the importance Americans attach to timeliness and speed.

What is Culture? and Why does it present so many challenges?  Are we not all human beings, doing business in a world that is becoming daily more global and homogenous?

The challenge is that “Culture” is not always easy to define.  One definition is that it is the total collection of the values, beliefs, customs, expectations, and behaviors of a group of people in a country or organization at a particular place and time.  Here is another definition from the “Founding Father of Cross-Culturalism,” Dr. Geert Hofstede: 

“If the minds [of the human race] are its hardware, then its cultures are its software.” 

And, if the people doing business in another country or company do not understand the cultural “software” of that country or company, do not have a feel for the values underlying its basic “operating system,” they cannot run their joint venture successfully – even if they know the language of their counterparts.  

Adding to the challenge is that culture is also difficult to perceive.  Only about 10% of a culture is perceivable; the remaining 90% is invisible, implied, even hidden.  That is why many cross-culturalists are fond of comparing “culture” to an iceberg:  You only perceive a small tip of it – and easily bump your ship into the hidden part.

Good cross-cultural preparation comes in the form of two-way cross-cultural training workshops accompanied by coaching and consultations.  Two-way cross-cultural preparation involves participation by each side of the joint venture in understanding their counterpart’s culture.  It makes good business sense to acquire this rather inexpensive insurance to safeguard a deal with large sums of money effort and hopes invested and at risk.

This is precisely the service offered by Local Strategy, a worldwide public relations firm.  Local Strategy is offering services in this area through its own successful cross-cultural joint venture with the American company, The PERFORMAX Group, headquartered in New York, but now with offices and representation in Shanghai.  The PERFORMAX Group has more than a dozen years experience working mostly with Fortune 500 companies on cross-cultural issues using their own breakthrough models and techniques.

What does cross-cultural training include?  A typical program involves participation in an intensive, interactive two-day program by each of the two sides in a joint venture, merger or acquisition, or strategic alliance, followed by a one- or two-day program involving both companies.  All programs are customized. Total confidentiality is assured throughout to both firms’ business.  

The distinctiveness of programs offered by Local Strategy/The PERFORMAX Group lies in the fact that unlike other firms in this field, they address not simply the counterpart’s culture at the national, regional and city level, but also the culture of the particular industry, corporation and even department and its professions, and the current mood of the business environment.  

  The Local Strategy/The PERFORMAX Group’s unique programs – based on original, proprietary models tested over time - focus on 1) building cultural awareness 2) developing practical cross-cultural skills and 3) practice in addressing differences and misunderstandings. Additionally, many clients bring actual recent problems or upcoming challenges to be addressed in the sessions.  For each engagement, the firm does a careful situation analysis before the program, and remains available to assist with implementation, as circumstances require.  The programs are valuable at any stage of the joint business venture – before, during, or after implementation – any time before the parties’ have given up the effort as hopeless.

The following cases illustrate a failed example (Case #1), and a successful example (Case #2).

MINI CASE STUDY 1:  The joint venture between a well-known Chinese company involved in manufacturing component parts in a joint venture with a large German-American high-technology company has recently broken down, according to a Wall Street Journal article.  The issue turned out to be a lack of awareness on the Chinese side that there was little need for applying a very high standard of precision and finishing on specific, secondary parts that the Chinese company prides itself on providing.  The German-American partners felt that applying the Chinese high standards to these parts was a waste of money.  The Chinese felt that they would lose face – mianzi – in both the West and in China if they reduced their standards for these parts.

How might cross-cultural consulting and training have kept this joint venture from collapsing?  If the approach had been applied at the very start of the project, both sides would have been assisted in developing a clear understanding of not only of each other’s explicit priorities and standards, but also of their hidden, implicit values. Moreover, both sides would have been trained in applying clear, mutually respectful communication and problem-resolving techniques to bring out in the open the hidden misgivings on the Chinese side.  In addition, once the disparity in product standards -- together with the misgivings on both sides -- had been revealed, the processes and instruments of cross-cultural consultation would have been used to find practical solutions.  This would have resulted in achieving the cost savings insisted upon by the Western partners, while respecting and accommodating the Chinese need to maintain their face in the company, and in the global arena.  One part o f the solution, for example, might have been developing an alternative brand name.

MINI CASE STUDY 2: This case is an example of one of our company’s recent programs.  An American financial services company had recently acquired a foreign bank.  Even though all the senior executives spoke English well, and a few of the American executives were doing their best to learn the language of their counterparts, there were frequent misunderstandings. In addition, the American company was used to doing things fast, the “American Way.” In addition, fears of layoffs by the American firm had led to paralysis and resistance in their partners. 

A combination of cross-cultural consultations and training workshops was implemented, including a cycle of confidential, intensive interviews, a series of post-merger integration workshops, followed by consultations and cross-cultural executive coaching to both sides, in both languages.  The American executives became aware of the importance of spending time to build mutual trust and respect, guanxi and keqi, with their Chinese partners. The outcome: A successful joint venture with a clear mission, respect for both sides, and a set of mechanisms for resolving any future issues effectively.

The PERFORMAX Group does not claim to work miracles.  However, once more, global statistics tell the story. “When both partners – or even one partner – of a cross-cultural joint venture apply good cross-cultural preparation, the success rate is over 95%, even in difficult situations.”  One could say the facts speak for themselves.