Mobility Toolkit – Organisational Culture Crash! Walmart’s Epic Fail of Intercultural Understaing

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In his seminal book, Riding the Whirlwind, the great Fons Trompenaars looks at the role cultural integration plays in the success or failure of mergers and acquisitions.  I wrote a blog post recently about Strategic Alliances and what they mean for the future of supply chain.  In this blog I want to look at the role a lack of understanding of the importance of culture, played in one of the greatest failures of a strategic alliance, or in this case, merger, of recent times.  The Walmart into Germany debacle.

World map in watercolor

In May this year the tale took a further turn.  In what is becoming know as the Amazon Impact, Walmart announced it was selling 42% of its shares in Asda, its UK branded chain, to Sainsburys (one of the Big4 supermarklet chaines in the UK) for £3bn.  This creates the largest retail group in the country, prompting Tesco and the French giant Carrefour into a global strategic alliance.  But given Walmarts’ past failures in Europe, will this merger be a success?  The past failures of the US retail giant into overseas markets are dominated by a single factor; the inability for the group to understand intercultural issues.

The biggest failure rate for international assignments is from which country to which other?  I have asked this question all over the world as part of an intercultural training session my organization runs and mostly, people think that the more extreme the move, the less likely it is to succeed.  Examples such as U.S. to China, or Sweden to Saudi are given, with the intelligent assumption that the more extreme the cultures are, the more challenges the expat will face.  But in fact the highest rate for assignment failures is for moves between the U.S.A and the U.K., and the reason for 60% of assignment failures is attributable to an inability for the individual or family to assimilate into the host culture.  So, the culture shock of coming to Europe and transferring from a U.S. lifestyle to a European one, involves not just a dramatic change in comfort and status, but also in cultural reference.

There is an expectation for American citizens of familiarity with Europe, as we have a long shared history and many common societal references such as similar political systems.  But scratch just a little deeper and the commonality ends.  European social democracies work with an entirely different mindset to the American self-determinist model.

On a recent visit to New England, on hearing my accent, the owner of the gift shop I was in asked about the UK’s NHS, our socialised healthcare system.  She wanted to know how I felt about people who were not working, having the same access to healthcare that I have as a fully paid up tax contributor.  I said that in Europe healthcare is seen as almost an inalienable human right, but she said that in the U.S. it’s seen as the result of hard work and of having a stake within society as a functioning economic citizen.  It made me think.  These differences in attitude are not necessarily expected prior to a move to Europe and only increase a sense of difference.  If we are talking about a move from Europe or the U.S. to the middle-east, we are already aware of the vast difference between the cultural norms and therefore don’t face such a unexpected reality check.  So the more prepared the expat and family are, the higher the rate of success for their assignment and therefore for the whole project itself.

As I’ve said, one of the most striking examples of corporate expansion failure in recent years was Walmart’s move into Germany.  Even by American standards, Walmart must be considered as a success story without precedent. Forty years after its start in 1962, when Sam Walton and his brother Bud set up their first convenience store in tiny Rogers, Arkansas, continuous double-digit growth rates have transformed it into the world’s largest retailer.  After establishing itself as the dominant player in its home market, Walmart decided, in the late 1980s, to embark upon an ambitious overseas expansion plan to sustain its brisk corporate growth. The goal was to have its overseas operations contribute a third of its total profits by 2005. In 1991, the first store outside the U.S.A, a SAM’s Club membership warehouse, was opened in Polenco, a suburb of Mexico City.  Continuing this aggressive expansion model, Walmart set its sights on Europe and a strategy was drawn up to enter the highly competitive German retail market.

The corporate culture of Walmart is interesting.  The U.S. success formula was built on low prices due to extensive use of advanced IT in logistics and inventory management coupled with a highly motivated workforce, influenced to some degree by a quasi-religious attitude common in many U.S. companies.  So how could they get expansion into one European market so wrong?

Firstly the entry-by-acquisition strategy they adopted was fundamentally flawed.  Of the two existing retailers they bought, Spar and Wertkauf, Spar was considered a very weak player in Germany and perceived as very low quality.  Its stores were small and in less prosperous inner city areas.  The corporate cultures and marketing strategies just were not compatible.  Coupled with this, Walmart paid far too much for the ailing Spar group and could not recoup the loss.

Secondly and most crucially from a mobility perspective, the U.S. management clashed cultures with the existing German teams.  Post merger integration is tricky at the best of times, but when this is taking place across two very different cultures, the importance of intercultural competence in the management team is key to success.  Walmart appointed four different CEO’s during the first four years of German operations.  The first, Rob Tiarks, had supervised 200 U.S. mega stores from the Arkansas HQ.  He had never been expatriated before, spoke no German and therefore decreed that the official language of Walmart Germany would be English.  His team ignored legal frameworks that governed retail operations and as a result the top three senior executives from Wertkauf resigned.  After Walmart bought ASDA in the U.K. in 1998, Tiarks was replaced by Brit, Allan Leighton, who ran the German group from the HQ of ASDA in Leeds.  Six months later he was replaced by Volker Barth, the first German to be in the CEO role and one of the remaining top executives at Wertkauf.  By this time, faith in the top management team had evaporated and Volker failed to integrate Spar into the operation.

The third reason why Walmart failed was a lack of cultural sensitivity to the retail operations as a whole.  U.S. and German consumers are very different and even the most basic of intercultural training programmes could at least have highlighted this fact prior to the expensive takeovers.  U.S. consumers are used to a very high level of interactivity with staff in a retail environment.  High and low context cultures, were first identified by Geert Hofstede in the 1970’s.  Consumers in a high context culture do not need the same levels of assistance and information given to them as consumers in a low context culture.  The U.S. is a low context culture and Germany, a high context one.  The result was that the meet-and-greet philosophy so popular in Walmart U.S.A, was seen as intrusive and rude to the German customers, who did not want or appreciate Walmart greeters welcoming them to the store.  They saw it as patronizing.  One retail success in Germany is the U.S. chain Eddie Bauer, specialists in outdoor clothing.  Walk into Eddie Bauer in the U.S. and a staff member will immediately ask if you need help.  Walk into Eddie Bauer in Berlin and the staff remain at arms length until you ask for help.  This is the German way and the management team at Eddie Bauer recognized this and incorporated it into their expansion planning.

Mobility providers and relocation specialists know all this, it is one of the great USP’s of our industry.  Just using a German relocation provider could potentially have immediately highlighted these issues as the US management team began their assignments into the country.  The wider understanding of the imkpact of culture often begins when working with the relocation company and can be huge success factor in both the assignment and down the line, team integration.  Spending a tiny fraction of the cost of the expansion could well have saved Walmart millions of dollars.  Within five years of the purchase of Spar and Wertkauf, Walmart had pulled out of Germany completely at enormous cost.

 

Dominic Tidey is the C.O.O. of EuRA, the European Relocation Association.  EuRA is the professional industry body for relocation providers and affiliated services. As a non-profit organisation EuRA aims to promote the benefits of a professionally managed relocation to companies with globally mobile employees.

Mobility Toolkit – Transactional Analysis and Power Distance

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There can be an inherent status issue when working in mobility.  How can the relocation professional on the ground with the pampered C-Suite executive demanding the impossible, try bring them together onto an equal footing to the ultimate benefit of the assignee?  Not an easy task but one that impacts on the relocation professionals’ role almost daily.

The intercultural factor at work is power distance.  Geert Hofstede, the godfather of cultural dimensions theory, came up with the power distance index as a result of Project Hermes.  This was the first and some would say still the most comprehensive, research project into cultural perceptions.  The power distance index is designed to measure;

“the extent to which power differences within the society, organization and institutions are accepted by the less powerful members.”

This dimension really affects the way that people will relate to each other in relation to their roles.  So a culture with low power distance will be very relaxed in terms of hierarchy.  Take a culture like the Netherlands.  Corporate structures will be very flat, senior managers will operate in an open door environment and no one is perceived as more senior than anyone else, just because of their job title.  Working with a C-Suite exec from Amsterdam will be a very equal affair.  However, if that assignee is moving to country with a very high power distance, such as Malaysia, the relocation professional will automatically take a more submissive approach to the assignment.  This will mean they may not give a true opinion  for fear of losing face or offending the senior assignee.

In the other direction, an assignee from a high power distance culture like say, France, moving to a low power distance culture like Sweden, will expect to be treated with deference.  This will then be seen as both ruse and demanding by the relocation professional trying to get the family settled in Malmo!

So how can equilibrium be reached in these circumstances?

There is a brilliant therapeutic approach called Transactional Analysis (TA for short).   Commonly used in coaching and counselling, TA based on three basic principles;

  • People are basically OK; each of us has worth and dignity and deserves to be treated as such
  • Everyone has the capacity to think
  • People decide their own destiny by making decisions in their early lives and these decisions sometimes continue to operate as behavior patterns in later life. TA aims to highlight these patterns so we can decide whether they are still useful!

While we can’t change the behavior of our clients, TA helps to identify where certain behaviours may come from and how best to interact with them to achieve a better outcome.

Eric Berne, the founder of the TA model developed the parent, adult, child theory that states that each person is made up of these three ego states and we move between them according to our feelings at the time.  Understanding what ego state someone is in during an interaction is important as what’s known as “crossed interaction”.

This diagram shows a healthy (complimentary) interaction:

TA1

Here both participants are in the adult ego state, acting together both on the same level.  Person 1 is curious and asks a question from the adult states and person 2 responds from the adult state and all is well!

This diagram shows a crossed transaction;

TA2

Here the participants are in different ego states.  Person 1 asks a question from the adult state but gets a response from person 2 in the child state.  Person 2 is feeling patronized.  The result is conflict.

This model really comes into its own when working between cultures with different power distances.  Being able to diagnose the ego state of another person is an art, but there are lots of tips and tricks on YouTube (of couse!) like this one for example https://www.youtube.com/watch?v=nKNyFSLJy6o

Words, tone, tempo of speech, gestures, and postures all give clues to guide us into the ego state of another.  Parental mode is indicated by judgements.  Adult mode is characterized by clear and definable speech.  Child mode speech tends to be direct and spontaneous.

So next time we find it frustrating to work with someone from a culture which regards seniority and hierarchy differently to ours, watch for the TA cues and remember, we’re all individuals, not just an example of our home culture.

 

Dom Tidey is the C.O.O. of EuRA, the European Relocation Association.  EuRA is the professional industry body for relocation providers and affiliated services. As a non-profit organisation EuRA aims to promote the benefits of a professionally managed relocation to companies with globally mobile employees.

Intercultural Word of the Week – Viraha

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The Indian poet Jayadeva, in the 12th century, wrote the epic Gita Govinda intending for it to be learnt and sung at night while dancers evoked the passion of the story as a performance.  The poem tells the tale of love between the goatherd Govinda (an incarnation of the god Krishna and the cowherd Radha.  It is a story of love and loss and is an excellent example of a feeling in Sanskrit, viraha.  Viraha is an interpretation of a feeling of loss, abandonment, especially in the romantic sense of love lost, the incompleteness one feels when a loved one leaves.  It recalls the erotic feelings of love and the sense of desolation of heartbreak.

Don’t miss our first conference in Incredible India, November 14-16 2018, Taj Fort Aguada Resort & Spa, Goa, click here for full details.

 

Dominic Tidey is the C.O.O. of EuRA, the European Relocation Association.  EuRA is the professional industry body for relocation providers and affiliated services. As a non-profit organisation EuRA aims to promote the benefits of a professionally managed relocation to companies with globally mobile employees.

The Threat to Schengen… What Does it Mean for Mobility?

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The EU faces a challenge.  The fallout from the 2015 migration crisis continues to impact on the bloc and the response to the populist waves of concern in many member states has led to confusion as to how the Schengen Agreement is being implemented.

 

The Schengen Agreement led to the creation of Europe’s Schengen Area  in which border checks were abolished.  This is a cornerstone of the EU’s principle of the free movement of people established under the Treaty of Rome and consists of 26 European countries with a combined population of 400 million people.  Only Ireland and the United Kingdom opted out of the final implementation of the treaty when it was signed into law in 1999.

 

As the EU struggled to stem the flow of migrants in the wake of the Arab Spring (which led to the demise of the dictatorial regimes which had previously served as quasi border guards to the Union) so individual states such as Italy faced a large influx of people feeling the civil war in  Syria.

 

The resulting political internal turmoil in certain member states had led to a surge in populist anti-immigration policies, not least of which was the result of the UK referendum to leave the EU.

 

Two states in particular have effectively left the Schengen Area; Hungary and Austria.  This is permitted under EU law when public order or internal security are under threat, but when the European Commission expressed its hope to see the Schengen Area re-integrated by May 2017 at the latest, it fell on deaf ears.  Hungary is in the process of building a physical wall, 4 metres high and 175 km long on its border with Serbia.  In April France re-introduced border checks in response to the threat from continued terrorist attacks.

 

Statistics on how many EU citizens cross these internal borders without checks are understandably hard to come by, but 2010 research estimated that roughly 12.6 million people cross European borders each week, 73% of whom are EU citizens.  15% are nationals from other countries who do not require visas and 11% are people who do require a visa to travel to the bloc.

 

In early July German interior minister Horst Seehofer met with leaders of the Austrian government in reaction to the centre right chancellor, Sebastian Kurz’s warning that his government will increase border controls, even mooting the closure of the Italian border at the Brenner Pass.  Should this happen, the Schengen area in its entirety will be under threat.

 

At the base of this populist anxiety is the asylum issue.  The Visegrad Four – Hungary, Poland, Czech Republic and Slovakia – have refused to take in asylum seekers under any EU plan.  Austria, which has just taken the rotating presidency of the bloc, wants a “coalition of the willing”, a radical plan to force most refugees to file asylum applications outside the EU.  This refusal places the EU in a very difficult position.

 

How does all of this affect mobility?  Potentially, it will make smooth migration of skilled workers more complex.  The free movement of people is a cornerstone of effective and essential talent movement and management.  The UK is grappling with how far it will need to extend its tier 2 skilled workers visa programme after it leaves the EU next year.  The current cap on tier 2 is 20,700 and currently only applies to nationals from outside the EU.  Currently around 3.8 million people living in the UK are citizens of another EU country.  In 2017, 240,000 people immigrated into the UK from other EU states.  The tier 2 cap is going to have to be substantially raised if EU citizens are denied free movement to the UK in the event of a “hard Brexit”.

 

Extend this basic data to a non-Schengen EU and the scale of the issue facing the Commission becomes clear.  For corporations, the potential immigration challenges they face will get more complex.  For mobility professionals, the volume of work especially in immigration compliance, looks set only to increase.

 

Dominic Tidey is the C.O.O. of EuRA, the European Relocation Association.  EuRA is the professional industry body for relocation providers and affiliated services. As a non-profit organisation EuRA aims to promote the benefits of a professionally managed relocation to companies with globally mobile employees.

Strategic Alliances; Good for the Client, Bad for the Mobility Supply Chain?

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Alliance

Alliances have been around for centuries, both commercially and politically, but it’s the recent fashion for combining customer bases that has the business and financial world taking serious note.

 

Two giants of European retail have just announced their own strategic alliance.  Tesco, the UK’s largest grocer and Carrefour, Europe’s largest food retailer have combined to form a giant purchaser, placing their vast supply chains in a period of uncertainty.  The alliance will control more than 19,000 shops, which Tesco and Carrefour say will increase choice and lower prices for consumers.  One part of the reasoning behind this is protection of profit in an uncertain economic time; Philip Benton, a research consultant at Euromonitor International, wrote: “Tesco may also see this as a safeguarding of risk against possible supplier price rises in the event of a hard Brexit.”

 

Another part of the rationale behind this alliance is to try and claw back market share lost to discount retailers such as Aldi and Lidl and of course, the massive growth in online, particularly from Amazon, who now own Whole Foods Market and look set to become a disrupter in grocery retail.

 

Whole Foods Market are currently expanding their network of stores with its first European outlets opening across the UK.  They currently have 7 stores across London, with their appeal being the direct opposite of discount retailers.  Known in the US as Whole Paycheck, the brand is focused on organic, locally sourced produce.  One of the innovations Whole Foods Market brought to US retailing was the implementation of Conscious Capitalism into its business model.  One of the four pillars of this idea is the principle of stakeholder integration where customers, employees, suppliers and investors all take an equal place in the integration of the conscious company.  Whole Foods Market had a very robust set of rules about working with suppliers; not cutting the prices paid, honoring supplier targets,  loyalty to suppliers, even joint funding programmes to bring produce onto the shelves from suppliers who would struggle to meet demand where production was boutique.  With the Amazon takeover and the potentially almost limitless markets it has access to, will price now take precedence over respect of suppliers?

 

The Amazon takeover of Whole Foods market made markets very jittery in Europe.  “Clearly whoever and whatever Amazon looks at, the fallout from that is who they don’t take over,” said Shore Capital analyst Clive Black in London. “Amazon has the ability to put the fear of God in any of its competitors.”

 

So if the rationale for strategic alliances is to form viable competition in a VUCA world, who is taking advantage of it?

 

One of the first and most successful alliances was Barnes and Noble and Starbucks.  With a Starbucks in every Barnes and Noble bookstore across the country, there’s double the reason to shop there.  Where other book retailers have failed in the wake of e-readers, Barnes and Noble remains the only national book seller in the country and is optimistic with a new business model focussing on customer experience despite laying off 1500 employees across the chain.

 

The Illinois based Walgreens Boots Alliance reported sales $118bn in 2017, making it by far the largest retail pharmacy business in the world.  Consequently they are able to manufacture past patent drugs at much lower cost than brand name rivals and distribute them globally as well as sell high end own brand make up and skincare.

 

Spotify and Uber, two massive disrupters, joined forces in 2014 to provide music control to Uber customers.  People with premium Spotify accounts  are able to listen to their own music choices in cars booked through Uber.  The interesting thing about this alliance was how Spotify was affected by the troubles Uber has faced in recent years.  Alliances can also bring risks… in the age of the brand and the millennial, the massive importance of reputation cannot be underestimated.

 

So what do alliances and consolidation in our industry mean for the supply chain?  Team and Sirva have just announced their merger, creating a huge RMC with a vast global network of suppliers.  We can only speculate, but these alliances will continue and will almost certainly put pressure on supply chain members to increase cost savings, increase compliance and produce more bulk services at lower prices.  In a VUCA world, understanding and implementing alliances has never been more important.  Providers such as Dwellworks woke up to this some time ago and have  built their business model on diversity and partnership, bringing successful partners into the group.  Alliances matter, partnership matters more.

 

Dominic Tidey is the C.O.O. of EuRA, the European Relocation Association.  EuRA is the professional industry body for relocation providers and affiliated services. As a non-profit organisation EuRA aims to promote the benefits of a professionally managed relocation to companies with globally mobile employees.

 

 

Intercultural Word of the Week – Depaysment

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Dépaysement is the feeling you have when in a new, strange place.  The French have several words that describe a feeling of disorientation, but dépaysement has more than one meaning.  In fact, it can mean both the feeling of anxiety one feels when being an outsider in a new place that can leave us feeling unsettled, as well as the excitement we only ever feel when away from home.  The impossible becomes possible and we can be who and what we want in the anonymity of a new place.

Confused teen tourist searching location

Dépaysement can be as mild as a little disorientation, feeling a bit lost, to the full on shock of a new culture.  Literally translated in to English it means de-countrified and is a feeling particularly common to expats and families on the move!