In recent decades, many local firms have turned this cultural and commercial cosmopolitanism into a competitive advantage. Drawing on their cross-cultural capabilities and a diverse international workforce, homegrown companies such as Emirates Airline, Etihad Airways, Jumeirah Group and Mubadala have successfully established extensive operations in many other parts of the world.
There are obvious benefits to operating across borders, including access to new commercial opportunities, the exchange of knowledge and technology, and the opportunity to challenge myths and cultural stereotypes. However, navigating new cultural terrain can also present challenges for businesses.
This is the subject of a discussion I am participating in at the World Forum for Foreign Direct Investment 2015 taking place in Sharjah this week. One of the topics explored is how companies should respond when their corporate culture is at odds with the local customs of a foreign market.
This is a timely subject as more firms from the Gulf region have ambitions to extend their reach around the globe. Those that do will learn fast that there are different expectations on business in different territories. In certain markets, one may be expected to share earnings with a local partner. In others, expectations in terms of gifts and hospitality can be more lavish than what we may find appropriate. These situations can seem harmless enough. As they say: “when in Rome, do as the Romans do”. However, they can also be fraught with the risk of contravening a company’s governance policies or obligations under the law.
That is why international businesses need clear and versatile corporate governance policies that all their employees can understand and apply in every market in which they operate. From a legal standpoint, companies must be clear about their obligations in their home country, in the new market, and in all other jurisdictions in which they have planted their flag. For example, firms with any kind of presence in the US or UK may be subject to aspects of these countries’ anti-corruption laws throughout all of their global operations. Failure to fulfil these obligations can do lasting damage to a company’s reputation and ability to operate internationally.
It is not just a question of compliance. In my own experience, a strong adherence to corporate governance can be a potent competitive advantage when expanding abroad. At Gulftainer, a subsidiary of Crescent Enterprises, I have seen first-hand how an unwavering and zero-tolerance approach to corruption has helped the company in its drive to expand into new markets, including ones which to date score very badly on Transparency International’s ‘Corruption Perceptions Index’.
Without an effective governance framework, Gulftainer would never have been able to access backing from the World Bank’s International Finance Corporation (IFC) to support operations in Iraq in 2010. Similarly, the company’s expansion into the United States last year would have been far more complicated and potentially untenable if the company’s standards of governance and track record were not of a certain calibre.
Market access is only part of the story. A strong corporate governance framework can be a company’s best defence in times of economic or political turmoil in any host market. At the same time, it can provide built-in protection from the perils, and potentially fatal reputational damage, of being linked to corruption in a foreign territory.
Ultimately, it comes down to finding an appropriate balance between fitting in while remaining steadfast about protecting values and standards that should remain geographically borderless. It is obviously important, both culturally and commercially, for truly globalised firms and their employees to respect different cultural norms, sometimes referred to as “glocalisation”. Just as there is no single global currency, there is not one way of doing business that will work in every part of the world. However, successful and ethical companies realise that there are certain standards of governance that are too important to be compromised in the name of cultural assimilation.
With that in mind, there are some key things that companies can do before entering a new country or region. The first is to conduct a thorough assessment of the governance risks you are likely to face there. Second, once armed with an accurate risk profile for that territory, you can begin to take preventative action. This can involve strengthening policies or introducing safeguards tailored to the cultural norms that prevail there. Third and finally, employees expected to operate in any foreign market should be provided with culturally relevant information about doing business there, and additional training if required.
Above all though, the most important safeguard will always be transparency. If a company’s activities in all jurisdictions are being well documented, reported and disclosed, then management, the board and regulators can be confident that its policies and procedures are being applied in even the farthest reaches of its commercial footprint.
All firms with international aspirations must prepare for the day when their carefully constructed corporate governance policies come into contact with a new business culture. The key to managing these challenges is to ensure your corporate governance safeguards are clear, versatile and resilient enough to be impervious to the vagaries of diverse local customs. Only then can they truly support the ethical and sustainable growth of your business both at home as well as around the world.
As featured in The National on 8th February 2015.