Scaling Internationally – Why Culture Matters
International expansion stands as a necessary step for any business to reach the ‘next-level’. Historically following the exhaustion of home country demand, internationalisation situates businesses beyond the confines of their national markets. Once a stage reserved for domestically matured organisations with the capital for expansion, factors such as digitalisation have made international growth a viable option for businesses much earlier in their life cycle.
Although globalisation continues to drive cultures once filled with disparity towards consistent economic and social civilisations, expanding organisations must continue to focus a great deal of attention on cross-border discrepancies. A firm’s ability to effectively manage ‘cultural distance’ within global operations, will dramatically influence international success. Through discussing the importance of acknowledging cultural variabilities, we can explore challenges associated with striking a necessary balance between localisation and multi-national consistency. Additionally, this article will also investigate the significance of extending these considerations beyond a scale-up’s global strategy, for example external facing elements such as products, services and marketing, to include the formation of overseas internal environments.
Lessons from the Past
History is awash with examples of multinationals successfully navigating the transition from one market to numerous, achieving unprecedented uplifts in revenues and profits as a result. Netflix, for instance, successfully expanded across 190 countries within a decade. By effectively identifying and managing differing cultural preferences, in turn producing original content in dozens of overseas markets, the streaming service increased its subscribers from 22million in 2011, to 214million in 2021. Implementing a degree of localisation into their expansion strategy ensured the Multinational Corporation (MNC) could capture overseas consumers, whilst their fundamentals remained standardised.
Conversely, there have been several examples of organisations who fail to prioritise cultural nuances when expanding globally. A common tripping point is the naivety to associate ‘geographical distance’ with ‘cultural distance’. In other words, many scaling organisations incorrectly assume nearby regions will not significantly differ in terms of culture. US superstore chain Target’s unsuccessful expansion into neighbouring Canada illustrates this when it neglected the cultural divergence across the border. A contributing factor was that Canadian recruits were taught the ‘Target Way’, which is rooted in US culture, and as a result the organisation failed to achieve an internal environment connected with their mission, in addition to assuming consumer tastes remained consistent in the host country. While this case study demonstrates the need to adapt to consumer preferences, it also signals the requirement to recognise and address internal cultural differences when expanding into new countries and regions.
Contrary to Target’s approach, Netflix spent time and resource screening countries based on cultural similarities, as opposed to geographic distance, when first expanding their operations. The Netflix example is a good illustration for the need to identify and acknowledge cultural variations, as well as implementing a degree of localisation if you wish to scale successfully.
Localisation vs Global Integration
It is true that expanding organisations must incorporate adaptations to stay relevant in the new market, however consistency across internal processes, product and brand are crucial too – it’s a fine balancing act. Organisations that lack standardised operational practices often have slow rates of responsiveness, a key determinant of success in increasingly innovative markets. An element of consistency is necessary to ensure values and core identity remain stable, in turn a high-quality service is maintained for customers around the globe.
For scale-ups, transferring underlying foundations and processes on an international scale is vital to early success. Given the fast-paced growth many of these businesses experience, it is not uncommon for some to endure misalignment and eventual separation from the original founding principles. With every additional hire placing new recruits further away from the founding team, efforts should be centred around maintaining consistent values across the global group to ensure clear mission, vision, and values. Hence, expanding firms must adopt a hybrid strategy, striking a balance between local responsiveness and international integration with the original company vision.
Optimal scaling strategies vary from business to business. Most organisations, however, would benefit from adopting a transnational strategy, facilitating the generation of competitive advantages in local markets, whilst coordinating through more streamlined and centralised operations. Danish company, Lego, successfully utilised this approach to incorporate country-dependent alterations under the umbrella of stable global values – an expansion roadmap suitable for imitation.
Overseas Teams & Internal Dynamics
The importance of acknowledging cultural divergence not only holds with relation to global strategy, but also when cultivating international teams. The pivotal role human capital plays in expansion is often overlooked, subsequently the necessity to consider cultural variations when constructing overseas divisions is disregarded. While overarching scaling strategy is important, having the right individuals to deliver this is arguably a greater factor to success.
Varying Internal Work Environments
Much like consumer preferences, the way business is conducted internationally also varies. Internationally scaling organisations must consider local norms when devising hierarchies and internal processes. Several models have been proposed depicting this variation, the most respected being Hofstede’s Cultural Dimensions. This stands as an important tool for organisations to reference when building leadership teams abroad.
Australia (Blue) vs UK (Purple)
France (Blue) vs UK (Purple)
Despite the relatively small ‘geographic distance’ between France and the UK, Australia and the UK share a greater degree of cultural similarity (Figure 1 -2) which demonstrates the tripping point identified previously. Therefore, UK scaling organisations entering Europe via France – a common route – must consider the cultural contrast such as the increased dimension of power distance, inferring taller organisational structures should be devised. Considerations such as these will increase the likelihood of higher performance from overseas teams.
Local Recruits vs Expats
Equal attention must be given to the individuals comprising these host-country structures, namely: the balance of expat workers and local talent, mirroring the dilemma faced when deciding upon global strategy. Although placing expats can provide leadership with assurances that the organisations values will be preserved, introducing too many home country employees can be detrimental. These individuals often have limited local market knowledge relative to the host-country talent pool which can diminish the connection to the local market, and therefore the likelihood of success. This was seen with Groupon’s failed expansion in China. A predominantly expat management team produced incompatible marketing materials due to a lack of knowledge regarding local consumer preferences. Furthermore, with expats commonly being placed in senior positions overseas, a feeling of home-country nepotism can filter amongst local workers, further detaching them from the mission. Any overseas team should be filled with a fair representation of expats and local workers at all levels, ensuring home country values are ingrained whilst establishing local knowledge and fair progression opportunities for all.
It goes without saying that expats play a crucial role in successful internationalisation, therefore the methodology used for selection should not be overlooked. Ideal expatriates should have a solid understanding of practices, thereby providing a steady set of hands to ensure profitability, combined with their buy-in to the underlying values of the organisation. Ideally, scale-ups should look internally to identify high performing individuals who have a strong connection with the company, often originating from the founding team. The chosen leaders will need to be emotionally intelligent and adept at communicating with a variety of individuals across a spectrum of cultures and backgrounds.
Much like expat selection, the screening process for local hires should be given the same careful consideration. Home country screening would, in most circumstances, take place face-to-face to ensure the candidate is correct for the role. Although this personal approach becomes logistically more difficult overseas, the same level of detail and effort should be employed when recruiting abroad. Through the application of assessment technology, hiring managers are now able to obtain objective measures on not only competency, but wider personality traits and motivations. This ensures businesses can hire based on congruity of fundamental principles between candidates and the business, a measurement often missed in face-to-face meetings. Many of our scaling clients have benefitted from the holistic perspective provided by our leading intelligence platforms, enabling them to certify value congruence whilst not having to compromise on local knowledge.
In summary, while the importance of identifying and acknowledging cultural discrepancies is crucial, scale-ups should focus additional attention on balancing international culture with long-term, company-wide vision. Although many comparisons are drawn with large multinationals, the importance of achieving local responsiveness and international integration remains for those smaller scale-ups that are likely being faced with the same trade-offs and growth challenges. Ultimately, scale-ups should be striving towards striking an equilibrium with overseas internal dynamics and the overarching global strategy.