Global Logistics: Bridging the Cultural Divide
Companies move to ensure operational excellence when working across the cultural divide.
Employees of a major international third-party logistics provider refused to work in a distribution facility in Mexico—which they thought was haunted—until the 3PL arranged for exorcism rites to be performed.
A major electronics firm with high quality standards discovered that factory personnel in some countries were modifying quality testing scores to make it appear that those factories were making perfect product.
At an employee-of-the-month ceremony, the American manager of a facility in China recognized a worker's superior performance by giving him a clock. "You could hear a gasp throughout the audience. In China, giving a clock as a present signifies oncoming death," says Frank W. Lange, director of international development for Menlo Worldwide Logistics, Redwood City, Calif.
These examples illustrate how cultural complexities can add layers of challenges to global logistics and supply chain management. When doing business internationally, "people with the best intentions can create huge problems for themselves," Lange says. "It's very easy to take a misstep."
"If you throw very good U.S.-based logistics experts into another country, no matter how smart they are, they will make all sorts of mistakes unless they're sensitized to cultural differences," says Paul S. Bender, a consultant with Supply Chain Executive Advisors LLC, Miami, Fla.
With the United States' percentage of the world economy half what it was 50 years ago, "there's increasing pressure to do business globally," Bender says. "Companies have to be prepared to do international and global logistics, not just domestic."
The Three States of Global
The first step to preparing for international logistics is understanding what stage of global business your company is in currently.
Companies that simply export and import product are in the first stage of globalization, explains Gene Tyndall, associate director of the Center for Advanced Supply Chain Management at the University of Miami, Florida. This includes companies that export products to countries where they are sold, as well as companies in the United States (or elsewhere) that import everything they sell within their domestic market.
Companies in Stage Two are doing business internationally. They often work through distributors or subsidiaries, and may have some regional production and sourcing. They tend to have decentralized management and operations, Tyndall says, and different processes and IT in place.
Companies in Stage Three are considered global, have global brands, and do business around the world. "Global companies have global sourcing and distribution, and more centralized planning," Tyndall says. "They think globally, operate regionally, act locally." A global company will have common processes, so that, except for local differences, a distribution center in China will operate similarly to a DC in Ohio.
Operating globally creates different requirements than operating internationally. "If you move to a global proposition, you have to think in terms of the entire organization, which can no longer be headquarters-driven. Instead, it should be network-driven," says Nicholas J. LaHowchic, president and CEO of Limited Logistics Services Inc., Columbus, Ohio.
Having a global mindset requires a new way of looking at how the company does business, internally as well as externally. "For example, a global company would ask, 'are our accounting, business, and sales practices prepared to take us into the areas our customers demand that we go? Do we have a diversified workforce with many cultures?'" says Frank Lange.
Whether you work internationally or globally, the challenges are far different than those of working domestically. "The complexity is much higher. Risks are much higher. The uncertainty is much greater," Bender says.
For example, logisticians working internationally "have to understand currency implications from a logistics point of view," he says. "Financial matters such as exchange rates can change the selection of suppliers, transportation modes, inventory levels—they can have a direct impact on very important logistics variables."
Distance is also a critical factor in international business. "Distance always provides a challenge logistically," says Robert Gifford, vice president of global logistics for Hewlett-Packard Company, Palo Alto, Calif. "When you buy your chips from Korea to go to China to be assembled for a product launch in Indianapolis, that's much more challenging than having the chips come in from Chicago." HP serves customers in more than 160 countries on five continents.
Other factors such as differences in inflation and political risk can come into play in international and global logistics.
In addition, "you're putting together a supply chain that has all the nuances of each region. The Chinese New Year, the Cherry Blossom Festival, Oktoberfest, and the Fourth of July—those all play into operations," Gifford says. The hard part is that you don't have the familiarity around the world that you have with occurrences in your home country.
"I know when the Fourth of July is coming, but I'm not as familiar with the Australian holiday for independence. If that interrupts my supply chain, particularly in a just-in-time environment, the ramifications could be big," he says.
Add cultural differences to the mix, which "are probably the greatest area of complexity," Bender says, "and it becomes even more of a challenge. That's where most mistakes tend to be made."
While most large companies have or can get the expertise required to cope with international finance, exchange rates, and inflation, "they may not have the smarts to find out the differences among people, including cultural, historical, language, and laws," he says.
Despite what Bender calls "a tendency to assume that the rest of the world must be very similar to our part of the world, that what works here will work everywhere," cultural differences can be tremendously important.
"Cultural differences exist whether you operate domestically, internationally, or globally," Tyndall says. The relevance of culture increases sharply as companies go global.
Logistics professionals who don't pay attention to such cultural differences "could make significant mistakes that would create a veiled resistance to others doing business with them," Bender warns. Breaking taboos in another culture may cause others not to want to do business with you, or introduce barriers to achieving optimum results.
Resolving cultural differences will never happen by itself. Doing so requires sensitivity, awareness, and savvy. But becoming globally competent means more than knowing "how to use chopsticks in Asia or drink wine in France," notes Frank Lange, who has been involved in international business for 20 years.
Some areas where cultural differences may come into play in the logistics/supply chain arena are:
Establishing relationships. "Cultural differences can have a huge impact when setting up an initial relationship," says Gene Tyndall. "In the United States, you may be able to do it over the phone. In Asia, it takes face-to-face time, contact, and trust.
"In the United States, business is business. As long as there's a profit, we'll tend to do business with someone. That's not the case everywhere," he notes. "In Asia, for example, people won't do business with you unless they feel very comfortable with you. Selling yourself and establishing a cordial relationship, is a prerequisite to doing business."
Establishing such relationships doesn't happen overnight, Bender warns. "You have to be very patient. If you push, you may drive people away."
Use of third parties. "In some parts of Asia, inviting a third party to design and implement a supply chain management model for your business can imply you have not done your job properly," says Rick Moradian, APL Logistics president for Asia/Middle East. "This type of scenario must be treated with sensitivity and highlights the need to have team members—regardless of their nationality—who are familiar with the cultural and linguistic sensibilities of client companies."
Contracts. "In the United States, we believe firmly that a commitment, a contract, has to be honored. If you sign the contract, you either live by it or you're taken to court," Paul Bender says. But in other parts of the world, "a commitment is a statement of intent, and if the situation changes significantly, you're not expected to fulfill your part of the commitment."
For example, a major devaluation in your currency or your supplier's currency may cause your trading partner to feel that it's no longer in their interest to honor the commitment. "While that's unacceptable in the United States, it's perfectly acceptable in their culture," says Bender.
Differences in working style. "When you deal in an international situation, you have to be aware of people chemistry," says Robert E. Murray, president, REM Associates, a management and supply chain consulting firm based in Princeton, N.J. Murray and colleagues helped a global consumer products company implement a new production planning and scheduling system in 10 countries in the Far East, Middle East, Africa, and Central and South America.
Murray found that assigning individuals with working styles compatible with those of the local nationals was a key step to getting results—and that failure to do so could be a real barrier.
Speed. "In America, we think we can make a decision today, implement it today, and see the results tomorrow," notes Roy E. Cail, principal, R.E. Cail & Associates, a management and supply chain consulting firm based in Tulsa, Okla. On the other hand, "many cultures want to consider different alternatives" before making a decision. The difference in expectations and styles can cause friction and resistance.
The Same, Yet Different
In logistics and supply chain management, many things are the same around the globe. Doing business internationally "just requires you to be more diligent about good management practices, not take shortcuts, not make assumptions, and to make sure your understanding is correct," says Colleen Willhite, vice president of supply chain and manufacturing for Imation Corp., St. Paul, Minn. Imation sells its data storage and other products in more than 60 countries with about half its sales in the United States and the other half outside of the United States.
But there are important differences. While "a pallet's a pallet, whether you're in China or the Netherlands," according to Frank Lange, the details of the pallet may vary depending upon where you are. "U.S. and European standard pallet sizes are different," Willhite observes. "A warehouse might be designed to hold one but not the other." EDI and wireless standards might also vary in different parts of the world.
Other key differences include personnel and human resources issues, the regulatory environment of each country, "and the various cultural factors that float outside the operation," Lange says.
Many companies have local or regional managers guiding local hires, "so your real management challenge is often from corporate to the regional or country level," he says. "That's where you run into issues such as competitiveness."
For example, "if the U.S. organization thinks everything they've done is great, and want to march through the world with that model, the local folks may say, 'that may work in Des Moines but it won't work here.' You ignore that message at your peril."
"You have to go in with an open mind, with a willingness to listen to the other parties," says Roy Cail, who has worked extensively in Australia, Canada, and Europe. "You need to understand where others are coming from, and modify your thought processes or ideas so that you'll have a higher degree of success."
"Success comes not from determining whether something is a New Zealand, European, or U.S. idea, but from focusing on what's the best idea overall," he says.
For greatest success, "think and plan globally but execute locally, in the local language and according to the local culture," Bender advises. The challenge is to implement global processes and planning that are flexible enough to accommodate local and regional conditions.
HP has been able to do that by regionalizing its global logistics operations. "We have a very regional focus, which gives us the local flavor," Robert Gifford says. "But we've tied it together with a global thought process," strategically and systematically, providing the needed commonality with a regional focus.
Take contracts with third-party logistics providers, for example. "We have a base agreement that every provider working with HP in the 3PL space signs," Gifford reports. "But we will also have statements of work addendums that have regional specifics, that allow us to function in that region in a way that gives us a competitive advantage."
Through this approach, HP is able to standardize its processes on a global basis as much as possible, while structuring the business to take into account local and regional differences.
Imation took a global approach recently while reengineering sales and operational planning processes. The company brought in a dozen specialists and managers from the field to participate in the reengineering.Expected benefits include fewer errors plus greater understanding of regional requirements among corporate staff and vice versa.
"We engaged the global folks for current state documentation and future state development. We went through the whole process to make sure that we had all the requirements—data, frequency, units of measure, stockkeeping units." A top goal was to ensure that people from around the world were using a standard nomenclature.
Another goal for Willhite has been developing a common definition of metrics "so that everybody calculates everything the same way." In addition, she says, "you also have to take into account local customs. In most cases, you wouldn't expect the same sort of days' sales outstanding in Italy as you do in the United States. You have to take cultural issues and customs into account as you set your metrics."
Defining a common method of calculating metrics has required significant effort. But it will pay off, Willhite says, when teams from around the world can discuss metrics, identify gaps, and develop ways to address them.
Living with Languages
"If you think only of the Babel of languages and dialects in Europe or the Americas, you might imagine it to be tough to do business there," says APL Logistics' Rick Moradian. "But if you multiply Europe and the Americas by several hundred, you would still be nowhere near the linguistic diversity of Asia and the Middle East."
Doing business in different languages can be a tremendous challenge, on multiple levels. For example, Imation conducts business in English. "Because English is a second or third language for most people, we have to make sure that our communications are clear, " Willhite says.
In addition, when working internationally, "it's important to make sure you do a lot of active listening," Willhite suggests. We can't assume that silence implies concurrence; rather we must make sure that both parties understand and agree with what's being said.
While English is increasingly spoken as the language of business, when working abroad, be prepared to bring in an interpreter if you don't speak the language. Bob Murray recalls, "at one meeting, I was told by my counterparts that it was more productive for them to speak among themselves in their native language, and then talk with me in English." They spent a good part of the day talking among themselves. The next day, Murray brought his own interpreter, and got very different results.
Bender, who speaks six languages and has conducted business globally for decades, has significant experience creating an integrated team of diverse professionals. Doing so "is not overly complicated," he says, "but it's not simple. There are a few things you have to do right."
The first step, he says, is to agree on common values. Take customer orientation. "Spell out what being customer-oriented means," Bender says. "In the United States, for example, if customers want to return goods, they can often do so with no questions asked. That may not be the case in other countries." Take the time to identify and agree on common values.
Here are other steps to successfully creating an integrated global team:
Decide on a common language. "In Germany, for example, some of the largest companies do business in English, not in German," Bender says. "Even though they're German, they write e-mails to each other in English."
Invest in face-to-face meetings. Robert Gifford brings HP's logistics directors in to headquarters on a quarterly basis. He also regularly travels into the field to meet with his regional managers and their staffs to stay in touch "and make sure that we maintain continuity," he says.
A face-to-face meeting is particularly crucial when you have somebody new to the team, or are launching a new initiative, Colleen Willhite says. Meeting in person can build a strong foundation for the future, and in some cases it may be required. "It's hard to get somebody on the same page without getting face to face," she says.
Use other communication media effectively. "We do some videoconferencing, and quite a bit of teleconferencing," Willhite notes. "This can work very well if you have a team that knows each other so they don't have to worry about the nuances you might pick up during a videoconference."
Use good management techniques. They're even more critical in an international environment," according to Willhite. "Make sure you're soliciting input from the team. If you've got issues with somebody who may have a gap in terms of understanding cultural issues, get them some specialized training in that area."
Written communications can help ensure understanding. "We try to document things in written form; it helps with understanding. We publish agendas and meeting minutes; they make it easier for everyone to stay on the same track," she says.
In addition, Willhite notes, "we try to do a really solid job of communicating and cascading our overall objectives across the world. We don't want to have a situation where somebody is trying to march to a different set of objectives than what we're doing as a company."
Becoming Internationally Savvy
Nick LaHowchic began working internationally more than a decade ago. As a logistics executive for a pharmaceutical company, he was involved in reducing the firm's European distribution network from 22 distribution centers to two.
"There were probably three to five different national languages in the room at one time," LaHowchic says. "I had to communicate with each person in their second language while trying to do some transformational work."
To shorten the learning curve, he says, "I had to read books to try to understand cultures so that I knew what people were trying to communicate." He began studying global enterprise, to understand how other organizations were doing business globally, and what role culture played in global management. He's been learning on the job ever since.
While the number of logisticians with international experience is growing, "we don't have enough globally competent logistics and supply chain people in the world," Tyndall observes.
It will become an increasingly important capability, according to Roy Cail. "If you're working for a company of any size today, you are doing international business in some fashion. If you really don't understand cultures, or how people work and how they approach things, how will you be able to interact with them effectively?"
Tyndall points out that "you're not going to persuade other cultures unless they respect you. You have to have a body of knowledge that goes beyond 'here's how we do it in Ohio' to 'here's how we do it across borders.'"
You can begin acquiring that knowledge by reading up on different countries and their cultures, and getting smart about managing globally, LaHowchic advises.
"There are no easy ways to becoming globally competent," Bender warns. "You have to try to learn about the international culture and the business scene.
Above all, you have to practice. There's no way you can read a few books and become an expert." While traveling internationally can help expose you to some of the differences, "until you start doing business internationally, you won't realize how deep and important some of these differences are."
Some steps that you can take to bridge these gaps include:
Learn another language. "Learning another language helps you communicate with others and understand another culture," Bender says. "Then you start understanding why people in another place think in a slightly different way than you do." That's a crucial step in becoming globally competent.
Develop your facilitation skills. "If you're trying to drive a new strategy for any region, and have different cultures in the room, you need to know how to facilitate the discussion," Gene Tyndall explains.
He recalls, for example, facilitating a supply chain strategy session with country managers from 15 different cultures. Using clear graphics helped ensure that everyone had a clear understanding.
Being an effective facilitator internationally often requires improving your communication and listening skills as well as increasing your awareness of cultural differences.
Get involved. "Whether you're the regional vice president or a young manager, it's absolutely vital to get to know the people you work with in other countries," says Frank Lange. Getting involved with the local culture is especially crucial for expatriates living abroad.
"If you're going to learn what motivates them, spend every lunch hour talking with the local staff and eating the food they eat," he says. "Then you can begin to develop relationships that build trust and loyalty.
"If you don't speak the language, don't know how things work, and are detached from the real life of the people who can make you successful, then you don't have anybody leading you through the minefields. You will be blind."
U.S.-based managers working internationally "need to develop a regular cycle of bringing in people in the field for training, so that they are familiar with projects.
In addition, as a manager, you need to be in the areas in which you are responsible at a minimum of once a quarter, for at least a week," Lange explains. "Nothing replaces face-to-face contact to build a level of trust."
Avoid making generalizations. Be careful not to apply what you learn about one country to another, LaHowchic warns. There's incredible variety in the world. "If you go to Singapore, you'll see a country that's as industrialized as the United States," he says. "Sri Lanka may look like a poor country, but factories there have received awards for quality and productivity. They are as good as any you'll find elsewhere in the world."
Create a new culture. "People like to say that we've got a culture clash," Lange observes, for example, between brash Americans and reserved Asians. "I like to say that to mitigate that clash, you create your own culture within your organization or project, one that's a mixture of both."
Taking this approach enables people from different parts of the world to respect each other's culture, assimilate it into their own culture, and achieve common goals and a common level of understanding, Lange says.
Becoming internationally savvy and globally competent doesn't happen overnight. And it may require stepping outside of your comfort zone.
Is it worth it? Ask HP's Robert Gifford. "I think that global capability gives us a competitive advantage. I think that sensitivity to all individuals of all races, genders, and creed—regardless of nationality—is the key to having that happen," he observes. Extend that sensitivity to the global arena, he says, "and you'll be successful overcoming cultural differences."
Even if your current responsibilities don't include international work, that may change. As Paul Bender points out, "International trade has been and most likely will continue to be the fastest growing segment of the world economy. For that reason, successful companies will continue to place great emphasis on participating in it, which will mean growing importance for international logistics to support business."