What Makes Good Cross-border Investments Great; Cultural Understanding
When investors set out to navigate foreign territories and make investments in new corners of the world the more common denominator than deal flow, seems to be first impressions made in local touch down.
How big a difference does cultural understanding make?
Variations in customs, beliefs, values and behaviors that exist between individuals from different cultural backgrounds can make a measurable difference. The most instant indicator of culture is the way we communicate.
A way to consider business cultural influences is suggested in Edward T. Hall’s context theory which states that; high-context cultures tend to be more effective in building and maintaining relationships, as they emphasize social harmony and group cohesion. In contrast, low-context cultures tend to be more efficient in achieving individualistic goals, as they prioritize clarity and directness in communication.
When it comes to business culture differences, it can be beneficial to investors to factor in the following;
Power Distance — is the degree to which people accept an unequal distribution of power and status privileges.
Uncertainty Avoidance — how people are uncomfortable with risk, change, and ambiguity is called uncertainty avoidance.
Performance Orientation — innovation, high standards, and excellent performance are encouraged and rewarded.
Assertiveness — individuals are forceful, confrontational, and aggressive, as opposed to cooperative and compassionate.
Future Orientation — delayed gratification and planning for the future are valued over short-term gains is called future orientation.
Humane Orientation — which fairness, altruism, generosity, and kindness are encouraged and valued is a measure of a country’s humane orientation.
Institutional Collectivism — which organizational and societal institutions encourage individuals to be integrated into groups and organizations.
In-Group Collectivism — individuals express pride, loyalty, and cohesiveness in their organizations or families.
Gender Egalitarianism — male and female equality actualized is called gender egalitarianism. (read more)
Many investors in Nordic Venture Partners network recognises the issue which ment their companys first investment in the Nordics did not work out and was discontined as a result. Unfortunately the appetite for more investments after seems even more risky.
The big difference in navigating business culture better is, that it can either make or break ventures.
The many difficulties of navigating cultural differences
From the local network of Danish investors and angels an example of difficulties was, investing in a psysical product (??) that was built and launched in the Netherlands. Stakeholders had no sense of what was going on, and obviously they had placed a lot of trust in the founder team to navigate the market. This did not boat well, and the investment was lost.
“Management is deeply embedded in culture. What managers do in Germany, in the United Kingdom, in the United States, in Japan, or in Brazil is exactly the same. How they do it may be quite different.” — Management Expert Peter Drucker
We might think we have a good understanding of what Asians, Americans, or Europeans are like culturally. We gather these impressions from media and personal experience — maybe from travel and other encounters. But one of the difficulties seems to be our pre-determined mindset towards a culture. We might think we know about Americans as an overall people, and following expert profiles gets us closer — but would you be able to recognize and explain significant business cultural differences in broad strokes between let’s say the states Arizona and Montana?
Now, as bias can work in our favor — it can also muddy the water in decision-making. You might say that you can have a positive bias that works against you. Beyond data and local references there is still a lot of room left to navigate cultural differences.
As the complexity increase, international investors typically gravitate towards local partnerships to leverage a local favor and not take any unnecessary risk. There are many ways to navigate that, as well.
At Nordic Venture Partners we often meet investors that really appreciate this rationale and understand the importance of local information, advisory and partnerships. More than often we hear tales of misalignment hence a bad investment experience. We learn how first impressions and the initial stage often is not enough to uncover the true indepth understanding of the future collaboration in business ventures. Now, this is not the companies, nor the investors fault. The attention to detail was just simply not a part of the analysis factored in the transaction.
In the Nordics we are predominantly low-context culture countries, but with very noticable variations between countries and regions. A low-context means that; communication is made explicit, we rely on the spoken or written word to communicate meaning (say what you mean, mean what you say), we prefer explicit formulations and rules, direct, sometimes frank speech. There is efficiency and concise use of words, and elaboration of unclear meanings, and value being articulate and clear.*
(hopefully this article lives up to that!)
Cultural differences between the Nordic countries
To understand the Nordic cultural differences a bit deeper in views, decision-making values and execution you might find this article about how the countries individually delt with the Covid-crisis informative.
Lastly, one may argue that investors don’t care about cultural decisions, when targets are met in due time. Nevertheless, what really strengthens the road to achievement and outperforming results; is culture. As famous Danish entrepreneur and investor Tommy Ahlers said: culture beats strategy.
Nordic Venture Partners is a platform of services designed to support your investment endeavors in the Nordics. We are passionate and determined to help navigate and optimize international investors journey.
