Some business models that are a hit in the United States flop when companies mimic the same model in international markets. Walmart learned this fact the hard way when it discovered smiling greeters are not necessarily the way to do business overseas.
Senior management in 1997 decided to expand to Germany, where two of its major discount competitors were already doing business. Walmart followed the same management, marketing and customer service philosophy it is known for in the United States: informal, friendly and egalitarian.
Problems eventually surfaced in Germany.
It went through four CEOs in four years and, by 2006, closed its German operations and absorbed $1 billion in losses.
What went wrong? Kristin Ekkens argues the multinational retailer suffered from a severe lack of “cultural intelligence,” or CQ, which she defines as the ability to function in a variety of national, ethnic and organizational cultures.
“There were cultural conflicts in Germany,” said Ekkens, president of C3 Consulting LLC, a consultancy that helps global and multicultural companies achieve their goals through increased cross-cultural competence. Ekkens spoke recently at a seminar sponsored by West Michigan World Trade Association.
“Smiling greeters was a huge problem,” said Ekkens. “Individuals reserve smiles for people they know. Germans are formal and have a hierarchical management style. In Germany, bosses have a more dignified role, showing power and authority. Those are conflicts that made it fail.”
Walmart is not an isolated example, said Ekkens. Seventy percent of international ventures fail due to a dearth of understanding cultural differences, such as the Japanese’s proclivity for group orientation, the Chinese’s predilection for long negotiations — 85 percent of U.S. companies lose money doing business in China — or the Spaniards’ love for socializing before starting contract negotiations.
The financial fallout is staggering. An average of $700,000 is the first-year expense of moving an operation overseas, many of which fail, according to the International Labor Union and Economist Intelligence Unit.
Ekkens attributes some of this to what she referred to as international business myths, meaning international experience and cultural competence must go hand-in-hand to achieve success.
“You may have knowledge, but jet flying all over does not mean it equates with a higher cultural quotient,” she said. “Your CQ has more to do with your success and effectiveness in multicultural situations than you age, gender, location, IQ or EQ (educational quotient).”
Increasing one’s CQ should follow a four-step cycle, Ekkens said. It includes:
- CQ drive. What’s my level of interest, confidence and drive to adapt cross culturally?
- CQ knowledge. Distinguish the level of understanding about how cultures are similar and different.
- CQ strategy. Determine how to make sense of culturally diverse experiences.
- CQ action. Determine which verbal and non-verbal actions need to change when interacting cross culturally.
The payoff of a higher CQ includes employees who are better negotiators, networkers, innovators and effective leaders of multicultural teams, according to Ekkens.
“Of the companies that used the cultural intelligence approach through training, hiring and strategizing, 92 percent saw increased revenue within 18 months of implementation,” she said.
“So, how motivated are you and interested in people from different cultures? How much enjoyment do you get from interacting with people from different cultures? What are the barriers that prohibit you from readily interacting with people from other cultures?”