Kellogg Magazine  |  Spring/Summer 2015



Are you Uber-ready?
Faux pas? No deal. Understanding cultural distinctions can mean
big returns in emerging markets


enture capitalist Lee Pillsbury ’82 recently recalled his first business trips to China a decade ago. It was during these trips that he and two of his associates first began forging relationships with the government officials and hoteliers who would eventually become partners in a $300 million venture with China’s largest hospitality company.

Pillsbury’s associates, both Chinese, spoke Mandarin and were already versed in the cultural nuances of their homeland. But Pillsbury, the founder of real estate investment firm Thayer Lodging Group, had much to learn.

Since attempting to master the language overnight wasn’t a realistic option, Pillsbury instead sought cultural fluency.

“I had to work very hard to learn about the customs and all these subtle cultural differences,” Pillsbury said.

He learned the proper etiquette in presenting business cards: It’s disrespectful to pull a card from a wallet that’s been in one’s back pocket. He joked about supergluing his shoes to the floor while in a meeting with Chinese officials, so as to keep from crossing his legs while seated and showing the soles of his shoes — a sign of disrespect. He learned to avoid confrontation.

Westerners might think such things trivial. But deal-makers like Pillsbury know how crucial first impressions are in any budding relationship, especially when trying to make friends abroad.

“You can’t underestimate it,” he said. Cultural faux pas have the potential of being deal breakers. “If it happens in the first 20 minutes, it’s fatal. Luckily, I was very well coached.”

Relationships first

Those who understand the cultural norms of these economies have the competitive advantage among cross-border entrepreneurs, according to Jeanne Brett, Kellogg’s DeWitt W. Buchanan Jr., Distinguished Professor of Dispute Resolution and Organizations.

“Before going in, it’s helpful to know something about the culture,” she said. “They won’t want you as a partner if you can’t understand the circumstances under which they’re operating.

“It’s about developing that personal relationship that is really necessary in so many parts of the world — before you can get down to the details of negotiating an optimal agreement.”

Brett’s treatise on the subject, Negotiating Globally, now in its third edition, is required reading for anyone seeking to understand the art of cross-cultural dealmaking.

While the economies of the BRIC nations of Brazil, Russia, India and China have faltered in recent quarters, it is unlikely investors will completely pull out of those markets. Although foreign investments in those countries may be down, the economies had a combined GDP last year of more than $16 trillion, according to the International Monetary Fund.

Despite its slowing economy, China in particular continues to attract U.S. and European investors — specifically, investors who are seeking to broaden their portfolios into developing and transitional markets in the Far East, India, Russia and Brazil.

Many places in the world don’t operate as the United States does in terms of commerce. In particular, China operates under distinctly different social, political and economic rules.

“They operate on personal relationships,” Brett said, referring to China, “and sometimes we as Americans have a lot of trouble understanding that because we operate on legal contracts.”

Americans, she added, “tend to believe that a person is trustworthy until they prove themselves not to be. But in parts of the rest of the world, people will believe you’re trustworthy only after you prove yourself to be trustworthy.

“And so the only way to get around that is to demonstrate upfront that you are seriously interested in building a relationship with them, in having a relationship with them.”

It takes time and patience to build those relationships, she said.

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