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NDTO News Article

Investing in Social Capital

Featured ND Business Watch on October 16, 2011

When PepsiCo advertised in Taiwan with the ad “Come Alive with Pepsi”, they had no idea that it would be translated into Chinese as “Pepsi brings your ancestors back from the dead.”

This type of cultural blunder is obvious, but success in international business goes much further than being aware of the idiosyncrasies of language.

The need for greater cross-cultural awareness is heightened in today’s global economy. Differences in matters such as language, etiquette, non-verbal communication, norms and values can, do and will lead to failed international business deals. Even the seemingly unnoticeable differences in culture can be extremely costly.

Up to 65 percent of failed business is due to intercultural differences causing communication breakdowns that result in poor productivity. It has become clear that failure does not have its roots simply in financial and legal issues.

The key to being successful overseas is more than doing research to find the right market and international counterpart or buyer; it’s about understanding intercultural relationships and building focus on a new kind of capital – Social Capital.

What is social capital?

There are several types of business capital:

  • Financial capital: The company’s money, property, equipment and investments
  • Human capital: The company’s workers and their knowledge
  • Organizational capital: The company’s infrastructure including systems and processes

With the increasing global nature of business today, social capital has been added to this list of resources that make business possible.

The World Bank defines social capital as “the norms and social relations embedded in social structures that enable people to coordinate action to achieve desired goals.” The term refers to features of social organizations such as networks, norms and social trust that facilitate coordination and cooperation for mutual benefit.

In short, social capital is a company’s cultural competence and ability to connect with people from other countries in order to make business flourish.

Consider this example: FedEx wisely chose to expand overseas when it discovered the domestic market was saturated. However, the centralized or “hub and spoke” delivery system that was so successful domestically was inappropriate for overseas distribution. In addition, they failed to consider cultural differences such as Spanish workers preferring very late office hours. FedEx finally shut down over 100 European operations after $1.2 billion in losses.

If FedEx had invested in social capital, these losses may have been avoided.

Unfortunately, as with the other types of capital, there is no one-hour seminar or quick-fix for building your social capital. Success takes time, energy and often money, but the return on investment is invaluable.

At least three cups of tea

The Balti, an ethnic group in northern Pakistan, have a proverb: “The first time you share tea with a Balti, you are a stranger. The second time you take tea, you are an honored guest. The third time you share a cup of tea, you become family.”

This proverb, made famous in Greg Mortenson and David Oliver Relin’s book of the same name, supports the idea of taking time to build a relationship across cultures. This holds true in many countries overseas and is the bedrock of effectively building social capital.

For Americans, business can be done over dinner — or sometimes just drinks — but many countries find this aggressiveness toward the bottom line offensive. For your international counterpart, months of conversations may need to occur before business can be discussed.

Roger Gussiaas, president of Healthy Oilseeds, Inc., a grower, processor and exporter of organic and non-organic grains and oilseeds, has invested years in social capital and building relationships with overseas buyers. Today, 65 percent of his business is international.

“The relationship building is more important outside of America. In America, buying and selling can take place after any type of communication; in other countries, relationships need to take place — including trust and friendship — before business can start,” Gussiaas said.

It’s fine to show that you want results, but keep in mind that Rome was not built in one day. Get to know your foreign counterpart; it’s like creating a new family.

Before meeting a potential international counterpart or buyer, take time to learn about the culture you are entering. Again, you will not learn everything immediately, but failing to learn what is readily available to you may be interpreted as insulting.

Casey Bryl, export sales manager at Amity Technology, says remembering that you are doing business in your counterpart’s country is key, and a little effort — such as learning key words — goes a long way.

“Take time to learn the language, if possible, or at least some words, common phrases and greetings. Even if you don’t say it properly, they appreciate the fact you tried,” Bryl said.

Other basic aspects to keep in mind during your figurative three cups of tea are the Six Fundamental Patterns of Cultural Difference:

  1. Different communication styles
  2. Different attitudes towards conflict
  3. Different approaches to completing tasks
  4. Different decision-making style
  5. Different attitudes towards disclosure
  6. Different approaches to knowing

Being prepared is key. Today, international business doesn’t just apply to Fortune 500 companies such as FedEx and Pepsico — it’s growing in North Dakota at an unprecedented speed.

North Dakotans going international

It’s no secret that North Dakota is booming, and people across the world are taking notice.

Our state’s diverse economy is a sort of one-stop-shop for many countries. We enjoy a vibrant agricultural sector, a cutting-edge technology industry, progressive educational institutions and a rapidly-expanding energy sector. Furthermore, our growth is happening precisely at a time when global hunger for such products has been turning upward, driving the prices and demand for North Dakota goods higher.

Whether for oil, soybeans or combines, the growing world economy is turning to North Dakota for supply, and North Dakota exports are some of the fastest-growing in the nation. Over the past five years, exports in North Dakota have grown over 300 percent. Additionally, we lead the nation in the production of over 15 crops — North Dakota farmers are, in more ways than one, feeding the world. The statistics are phenomenal.

Considering the opportunities, the time is right for many North Dakota companies to explore international export markets. And, with the help of organizations such as the North Dakota Trade Office, District Export Council, U.S. Commercial Service, North Dakota Department of Agriculture and Foreign Agricultural Service, you could likely find an overseas market where buyers would be ready to receive your products.

North Dakota’s success has always started with people. If this trait is paired with due diligence and focus on social capital, the probability for international success is high.

“We believe relationships are based on honesty, open communication and ethical business practices. If these beliefs are shared, the partnership will be mutually beneficial to both parties,” Bryl said. “In the end, it will be a win-win situation.”