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Cultural illiteracy ruining trade

By | September 11th 2009

Gideon Oele

Globalisation presents Kenya with boundless opportunities to exploit in pursuit of its Vision 2030 goals. Two obvious paths to Vision 2030 are simultaneously marketing Kenya as a competitive foreign direct investment (FDI) destination and ensuring Kenya exports more.

Undertaking FDI and exporting are termed international business, and a firm involved in such a venture is a multinational or trans-national corporation.

International business is an extremely complicated venture due to different practices among countries.

The success of a trans-national enterprise largely depends on a clear understanding of the political economy and national culture of a given country.

Today, one of the main roles left for governments is to facilitate businesses by disseminating holistic information to assist them in making rational decisions.

Benefits, costs risks

This is the task confronting Ministry of Trade, Kenya Investment Authority, and Export Promotion Council and so on. But how well are Government functionaries prepared to stride across? How far are our business executives informed to clinch and manage deals?

Obviously, profit maximisation is the overriding motivation and, therefore, businesses must prefer locations that minimise transaction costs and risks.

There are broadly only two determinants of benefits, costs and risks concomitant with operating a business. These are political, economic and legal systems and development — jointly termed the political economy; and the national culture.

Political economy and national culture do not function independently but impact on one another. The interaction between the two helps create a firm’s corporate culture. Corporate culture is distinct to a firm and its traditional environment. But when a corporate culture frictionlessly merges into the national culture abroad, one hurdle to attaining competitive advantage is crossed.

Political, economic and legal systems determine whether a country pursues the ideology of collectivism (communism) or individualism (capitalism); the Government democratic or totalitarian; the economy is a laissez-faire or state-directed; and property right and intellectual property are protected.

A country gains competitive advantage if it promotes capitalism, practices democracy, respects private property and protects intellectual property.

Kenya scores highly in these. In addition, the Government is aggressively addressing defects in the hard infrastructure — roads, ports, railways, electricity and water.

These are important for attracting businesses but every other country is doing the same.

Competitive advantage, however, is not acquired only by fixing the hard infrastructure. An investor also needs information or advice on the national culture.

The effect of national culture on benefits, costs and risks associated with operating a business in any country depend on the degree of cross-cultural literacy. According to renowned anthropologist Edward Taylor, culture is "that complex whole which includes knowledge, belief, art, moral, law, custom, and other capabilities acquired by man as a member of society".

In his study of culture and workplace values, Geert Hofstede, defines culture as "the collective programming of mind which distinguishes the members of one human group from another..."

Values and norms

Hofstede, thus, identified four dimensions that summarise different cultures: power distance, uncertainty avoidance, individualism or collectivism, and masculinity or femininity. Cross-cultural literacy therefore, is the ability to understand cultural differences across nations and how they are likely to impact on business practices.

Culture is, thus, a combination of values and norms. These are products of a society’s political and economic philosophy, its social structure, dominant religion, language and education system.

Cultural literacy plays an informing role in negotiating a deal and evaluating optimal location for the business, and deciding on entry strategy, organisation structure and management system to use.

The decisions taken are normally dictated by cultural dimension as espoused in power distance, uncertainty avoidance, individualism or collectivism, and masculinity or femininity obtaining in the given society.

We have borrowed a lot from the West to an extent there is a very thin cultural divide between Western society and us. Massive UK investment in Kenya can partly be attributed to similarities in corporate cultures. Business transaction between Kenya and the West, therefore, should not present serious challenges to either side of the divide.

However, challenges are more likely to arise when doing businesses with an Oriental.

The Asian divide draws its business ethics from Confucian philosophy. This has exposed Westerners to unfamiliar business ethics that make it difficult to penetrate the region.

Three basic values

The influence of Confucian ethics in China, Japan, South Korea, and Taiwan is credited with lowering the costs of doing business leading to their economic successes. Confucian philosophy is based on three basic values — loyalty, reciprocal obligations, and honesty. These values contribute to reduction of risks and costs in several ways.

Loyalty binds employees to their organisations, reducing industrial disputes between management and labour.

Promoting investment or trade is not only about flashing out statistic on product or market shares but also facilitating understanding between cultures as this also lowers the cost of doing business.

The writer works with the Ministry of Trade .

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