The need to live up to changing market conditions and expectations and take advantage of the opportunities posed by innovative technologies has led companies of all sizes to go beyond national borders in their intent to capture new markets or expand their operations in the international arena. Those organizations hoping to compete effectively and prosper in the new globalized economy shall focus their attention on communication –particularly in respect of foreign languages- as this is one of the key factors of success in international business, according to the findings of the survey conducted by The Economist Intelligence Unit.
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Competing across borders: “How cultural and communication barriers affect business” is an Economist Intelligence Unit report that explores the challenges companies face when they have to operate or compete in increasingly international markets. Specifically, this paper assesses the role that cross-border communication and collaboration play in the success or failure of companies with ambitions that are not hostage to national borders.
The paper draws on two main sources for its research and findings:
- A global survey of 572 executives. Approximately one-half of respondents (47 %) were C-level or board level executives, and over one-half (53 %) were from companies with annual revenue in excess of USD 500m. All respondents represented companies with either an international presence or plans for international expansion. Just over one-half (51 %) of the respondents’ companies are headquartered in Western Europe; almost one-fifth (17 %) are headquartered in Asia Pacific; nearly one in ten (9%) have headquarters in North America, and 8 % are based in Latin America. The rest of the companies represented in the survey are from Africa, Eastern Europe and the Middle East.
- A series of in-depth interviews with independent experts and senior executives from a number of major companies
With their home markets in the throes of a prolonged stagnation, if not downturn, companies based in developed economies are turning more and more towards the developing world in the search for new customers and the hunt for new talent. Meanwhile, companies from vibrant developing economies whose ambitions have outgrown their own homelands are also seeking opportunities to grow through international expansion. These dynamics have combined to create a world of business that is thoroughly international, and in which it is commonplace for workers and businesses to communicate and collaborate with customers, colleagues, suppliers and partners in other countries.
The resulting need for harmonious and productive cross-border relationships that transcend cultural differences has placed new demands on companies and their workforces.
The survey findings reveal a corporate world that has at least recognized a new reality in which the right products and services must also now be allied with the necessary cultural sensitivity and communication skills in order for companies to succeed in markets away from home. However, the views expressed in the survey by senior business executives from all corners of the world also indicate that many organizations have yet to adopt measures that will turn this realization into practice.
Some of the key findings of the report are as follows:
- Contrary to the expectations of many experts, the current economic downturn is spurring companies into becoming more international
While previous recessions have often resulted in businesses reducing their risk exposure with a renewed focus on their core markets, an overwhelming majority of respondents in the survey conducted for this report confirm that their companies are becoming more global in their outlook and ambitions.
Several indicators corroborate this widespread internationalization of business. Almost nine in ten respondents to the survey on which this report is based think their company’s number of overseas clients will increase in the next three years, while 77 % believe that their company will have an operational presence in more countries than it does now. As a consequence, companies are moving away from traditional organizational structures, with 78 % saying that in the next three years they will establish more cross-border
teams, comprising people who are physically located in different countries.
- Effective cross-border communication and collaboration are becoming critical to the financial success of companies with international aspirations
Presumably as a result of their companies’ focus on international growth, almost two-thirds of respondents think that “better cross-border collaboration has been a critical factor in the improvement of our organization’s performance in the past three years”. However, a similar proportion feel that their organization encounters difficulties with cross-border collaboration or communication at least “sometimes”. This can be costly. Around one-half of the executives surveyed for the purpose of this report admitted that ineffective communication or inadequate collaboration had obstructed major international transactions, inevitably resulting in financial loss.
The overwhelming majority (bordering on 90%) believe that if cross-border communication were to improve at their company, then profit, revenue and market share would all improve as well. This is partly because potential opportunities in foreign countries are currently being spurned, with almost two-thirds of respondents saying that differences in language and culture make it difficult to gain a foothold in unfamiliar markets.
- Most companies understand the cost of not improving the cross-border communication skills of their employees, yet many are not doing enough to address the challenge
Despite acknowledging the direct impact of effective cross-border communication on their fortunes, a significant proportion of companies, by their own admission, are not taking sufficient remedial action to address the root causes of misunderstandings. Some 47% say their companies do not offer enough training to hone their employees’ language and communication skills, and 40% believe there is not enough emphasis placed on recruiting or selecting people who are suited to cross-cultural environments.
Some organizations appear to be underestimating the extent of the challenge. “Interconnectedness through modern technology has deluded many people,” according to Nancy J. Adler, chair in management at McGill University in Montreal, Canada, and author of International dimensions of organizational behavior. “There is the false assumption that just because we can reach anyone in the world so easily through email or Skype, we are, therefore, all the same.”
- Organizations with international ambitions increasingly expect prospective employees to be fluent in key foreign languages
The survey conducted for this report reveals the multilingual nature of the modern business world. According to almost one-half of the companies surveyed, at least one in five of their workers need to speak another language in their job, and one-quarter say that a majority of their workforce require some foreign language skills.
Not surprisingly, a majority of executives surveyed believe that their workforce will need to know English if the company is to succeed in its international expansion plans. Mandarin is considered the second-most important foreign language, but just 8% say their workers will need to be fluent in it. The importance of language skills in a globalized world is reflected in companies’ hiring strategies. Very few companies never consider multilingual skills to be essential in job seekers, but many now expect them to be fluent in at least one non-native language.
- Misunderstandings rooted in cultural differences present the greatest obstacle to productive cross-border collaboration
Respondents regard “differences in cultural traditions” (51%) and “different workplace norms” (49%) as the greatest threats to the smooth functioning of cross-border relationships. Nandita Gurjar, global head of human resources at Infosys, one of the world’s largest information technology services companies based in India, agrees that cultural awareness and cross-border ambitions go hand in hand: “We are a global company. We simply cannot progress without the knowhow and experience to deal with other cultures.”
Linguistic diversity – or the lack of it – is considered by some margin to be a greater business challenge in Latin America and southern Europe than elsewhere. For example, 38% of those surveyed in Brazil and 40% in Spain believe the difficulty in communicating in non-native languages to be a significant hindrance to effective cross-border relations.