Why is cross-cultural leadership getting so much attention? Why is it important for today’s leaders to develop their cross-cultural effectiveness?

Let me tell you a story.  It starts on a hot summer day in 2001 when the managing director of a family-owned company – let’s call him Paul – arrived in Hong Kong, flanked by his best lawyers.

He had worked with a Chinese partner firm for more than 30 years, much to his satisfaction, and now he had the opportunity to buy 25 percent of its shares. ‘We should set up a joint venture’, his lawyers had advised him, and Paul had rubbed his hands together with delight.  He knew it was a brilliant business opportunity.

When he walked into the room where the joint venture talks were scheduled to take place, Paul frowned his eyes in disbelief.  He had brought five of his own legal staff and hired local lawyers too. His Chinese partner had come to the talks without any lawyer present.  The talks proceeded without problems, and wrapped up after just three negotiating sessions. Paul returned home a happy man. He had a very beneficial agreement in his pocket.

After some months, however, the Chinese partner ran into some of the legal consequences of the joint venture agreement.  If he wanted to invest more than 100,000 USD, for instance, he needed Paul’s formal agreement.  He did not like that.  If he wanted to appoint a manager, he needed Paul’s blessing too – all in accordance with the terms of the agreement.

The relationship deteriorated. 

‘This was a very difficult period for me’, Paul recounted what happened. ‘I needed my partner, who did 50 percent of my production. I was a very privileged customer. In the 30 years we worked together, we had really come to trust each other. And now the entire relationship suddenly seemed to be on thin ice.  Somehow, my Chinese partner interpreted the joint venture agreement as a lack of trust from my side.  What could I do?  I wasn’t sure.’

How often do you think companies run into these type of situations?  Entire business relationships suddenly turning sour, preferred suppliers and/or customers suddenly turning their backs on you, all because of cross-cultural misunderstandings and misinterpretations – in Paul’s case a disconnect between his universalist and rule-based approach (preference for legal agreements with clearly spelled-out rules) and the relationship-centered approach (you are not a legal entity but my friend) of his Chinese partner? (find more here about this culturally determined difference)

Much too often, in our experience.

1.  Millions of dollars can be suddenly at stake because of unexpected, and often unintentional, cultural misunderstandings.  That’s the first good reason for examining and sharpening your own cross-cultural leadership skills. Today’s business leaders increasingly face challenges that are directly related to cross-cultural differences.  If you are able to reconcile these differences you can accelerate success. If you don’t, unexpected behavior, resistance and conflicts could seriously hinder your success.

There are more good reasons for boosting your cross-cultural leadership.

2.  Your ability to move people from ‘knowing we are different’ to ‘knowing how to work together, despite cultural differences’ is crucial to building successful collaboration across cultures and companies. Research shows that this in turn increases creativity and innovation (see Harvard Business School’s Roy Chua)

And there is a third reason. Recent investment figures show that more and more western multinationals are shifting their centers of gravity towards Asia (see McKinsey report on this). And mergers and acquisitions are starting to take place in the reverse ‘from East to West’ direction too.

3.  Chances that you will, somewhere along the road, have to lead people and teams from cultures that are not your own have never been as high. Your ability to lead, motivate, and inspire people across cultures is no longer a ‘nice to have’, but has become a crucial competency for leaders in today’s international business environment.

By the way, Paul’s story ended well.  After a long period of reflection, he advised his board to give up the joint venture, which they grudgingly agreed to in the end (‘I was quite lucky that my board followed my advice’).  ‘Better off without a joint venture, but with a happy partner,’ Paul concluded. Trust between the parties was restored. The relationship with the Chinese partner is currently as strong as ever.

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Hanneke is Research Partner and Writer at HRS Business Transformation Services, and author of several books. One of her fields of expertise is studying leaders and the way they lead change in cross-cultural environments, with a special focus on China and East-West relations. She is also an experienced manager of book projects for companies and organizations. Find out more about Hanneke and HRS’ services. If you would like to invite us to your organization feel free to contact us here.

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