Why Culture Matters
Reverse Innovation has become a big topic in research in the last few years, especially with the publications by Vijay Govindarajan. The concept behind this term is not as complicated as you might think, but it can boost your business enormously.
The concept is quite easy: You innovate for and in emerging economies and then transfer the successful innovation to your home country.
Reverse innovation is not about delivering less sophisticated or low-price versions of established products to emerging markets, but about inventing something which meets the needs of the local consumers. Often solutions and products from industry nations simply does not fit into the local market of emerging economies. The level of performance and cost are the two most important determinants and can be barriers for a successful market entry into emerging economies. People in India for example cannot afford an expensive European SUV. They are rather interested in cheap mobility solutions, which are more usable and handy in the chaotic traffic of India’s mega cities. Those restrictions in terms of costs and performance can lead to disruptive innovations, which meet exactly the local needs: an affordable and accurate solution. And this solution is the base for a new and successful product, which can be exported and brought as Reverse Innovation to the developed countries. To stay with the mobility example: Tata, a big Indian car manufacturer realised, that there is no need to develop a high-class luxury car and no need to keep up with European manufacturers for the Indian market. The market for small and cheaper cars is much bigger in India. So, they developed the Tata Nano, the cheapest car in the world (~2,000$ only) and became a big competitor for the two-wheelers manufacturers (a two-wheeler costs about 1,500$ in India). This innovation is not only sold to the Indian market, but Tata plans to bring it also to Europe and the US. And when Tata can produce a car for 2,000$, why can’t European or American manufacturers do that, too?
Let me give you another example of Reverse innovation: We all know the drink Gatorade. What we don’t know is, that Gatorade is not a simple sports drink. It was invented during a cholera epidemy in Bangladesh. The idea was simple: Cholera patients can be kept alive by keeping them hydrated. Ayurvedic medicine uses carbohydrates and sugar in a salt solution to help the patients, which was against the western medical opinion at that time. But it was proven that the human body can uptake water faster by taking this solution. This idea made the way to the UK and the US and researchers there found, that not only cholera patients need to be rehydrated quickly, but also football players. Gatorade was invented and has become a big success all over the world!
How do we approach Reverse Innovation and what does it have to do with culture?
Internationalising SMEs often focus on developed markets, such as the United States or another European country, because they offer both a big market to grow the business, but also a degree of the familiar. But growing SMEs into businesses with global reach also means reaching out to emerging economies. And here, the unfamiliar can feel bigger and the potential market more intimidating. To support European SMEs in their internationalisation towards the emerging markets, the source of Reverse Innovation, we have developed with the support of the Executive Agency for Small and Medium Sized Enterprises (EASME) and in consortium with our partners the Technopolis Group and Hofstede insights, a set of tools to help companies to become more familiar with the business cultures of various developing markets: An online library, a training and mentoring package within Europe and culture journeys to the emerging markets India, China and Mexico.
As we all know, that innovation does not happen by chance, we approach the topic from a different perspective: Participating SMEs learn that they have to localise their products for the foreign markets to be successful. Taking this adaptation into account will lead to an improvement of their products, not only in the foreign country but also in the home market. With our intercultural expertise we prepare the SMEs for their market entry and help them to establish a network in the market in question.
And we have been successful so far: our first journey to India showed that innovation does not necessarily have to happen on the product side, but can also be found in business models and ways to motivate people. Participants of our second cultural journey to China aimed at SMEs in the furniture and design industry discovered that Chinese manufacturers have developed a simple mechanical tool to treat bamboo; a work that has been done by hand in Europe until today. By using this tool, production costs in Europe can be decreased and European furniture can stay competitive on Chinese markets.
Being aware of cultural differences and ways to innovate is a fundamental competence to be able to learn from different cultures and therefore reverse innovation.
What our participants says about the programme: “It was fantastic. It’s absolutely worth to have this programme! It opens your attitude and your spirit and I have gathered a lot of technical ideas and also mentality ideas, which I will try to implement in Europe” Otto Loserth, Managing Director, e-Wald, Germany.
“Culture Eats Strategy for Breakfast” but are you having “bretzels” or “bing”?
by Laura Mitchelson (Managing Director China & North East Asia, icunet)
We love Peter Drucker’s quote at icunet but what Peter would have gone on to say if he’d seen China today, is that the corporate culture you adopt needs to be culturally anchored. What makes a really great corporate culture? That depends on where you are in the world. In China, we eat ‘bing’ (pancakes) and in Germany, we eat ‘bretzels’ for breakfast.
Corporate culture was originally a Western management concept and most Western companies take it seriously. Many revise their corporate values every 2-3 years and recruitment of new employees is often on the back of a certain set of cultural core values.
How do Chinese companies approach the subject? How do they embed cultural values and which ones are they interested in?
It was back in 2005 that the State Owned Assets Supervision and Administration Commission (SASAC) urged Chinese companies to ‘strengthen and build’ their corporate cultures. In 2006, the Chinese government regulated that all Chinese companies must have the position of Corporate Culture Officer. The government has also sponsored corporate culture training for thousands of executives over the past ten years.
Overall, Chinese companies are often more entrepreneurial and adaptive by nature than Western companies, which tend to have fixed roles and strong branding, some of which is linked to their ‘corporate culture’ and this can make them less flexible in this fast-paced market. Chinese companies take corporate culture seriously too! At Huawei, in the early days of their corporate culture development, it was possible to have your pay docked if you didn’t meet the culture targets. Pragmatism, lifelong learning, flexibility and strict enforcement of these cultures feature highly at many of the leading Chinese companies.
So there is certainly a cultural bias when it comes to defining a corporate culture. For a joint venture or multinational in China, cultural values that are brought in from head office in Europe or the US, need to be defined in a Chinese context if they are to be engaged with here. The intercultural complexities of a diverse team located in China necessitate a different approach to understanding cultural values and if you haven’t looked at your corporate values through the intercultural lens recently, we’d urge you to try it because if the values can be defined at the beginning in a way that makes sense across cultures, they have a much better chance of lasting the distance and being relevant for the whole team for many years to come.
Culture and International Business
German certification insanity vs. Chinese desire for international brands – a cultural perspective
Entering a new market, means entering the unknown. Besides the knowledge of hard facts, such as local regulations and laws, it is also important to consider cultural aspects like values and beliefs of a society. Theses supposedly “soft” factors of business development are significant factors and can determine the success of your business abroad.
Take for example Germany and China.
When you want to buy a new product that you are not yet familiar with – you will most likely spend a few thoughts on it. Important purchase criteria could be amongst other things: the price, the appearance, the utility, the quality, the brand etc.
In Germany, the quality criterion is very important and there is one special way in which vendors can convince the buyer that their product is of high quality – it’s through certification. There is a great variety of different certificates that guarantee various things regarding the security, sustainability, agreeability, or just that has been tested by an authority. The range in terms of publicity of these certificates is huge, with almost unknown authorities and regulation agencies on the one end and perhaps the most famous certificate by the German product test foundation (Stiftung Warentest) – famously known for his iconic logo, a red t, on the other. It counts that there is a certification because this indicates the buyer that the product has been tested, it went through an objective checking process and has been reviewed. Therefore, the product can be trusted. In this sense, certification serves the purpose of trust building which stems from the fact that the German population tends to trust institutions.
However, certifications are of little to no importance to Chinese buyers because their trust in institutions is not as high as it is in Germany. Nevertheless, trust plays an important role in a Chinese buyer’s decision as well, it just stems from another source. In China, there exists a strong trust in international and well-known brands because they are recognized to be of very high quality. Furthermore, the social status in China is very important. It is displayed and asserted through status symbols such as international (luxury) brands and goods. By purchasing international brands, one can show personal success, modernity and wealth. Additionally, well-known international brands are recommended within a social peer group, friends and families. In the Chinese society, people tend to trust and follow personal recommendations more likely than an external authority or certification that asserts the quality of a product.
This short illustration exemplifies that it is crucial to consider cultural aspects like for example values and trust-building processes when you want to expand your business abroad. And there are far more elements to be contemplated, such as communication style, negotiations, cultural appropriate and targeted marketing etc. The list is nearly endless. For this reason, it is useful to have native intercultural experts on your side that help you to navigate through the unknown and who can translate and connect two cultures with cultural, market and sector specific knowledge of the target as well as the country of origin.