Consultant Dean Foster discusses ways companies can become more culturally adept in countries where they do business.

Doing business in Mumbai is not the same as in Milan, which is why working in today’s global economy requires a deep understanding of cultural differences. Dean Foster, consultant and lecturer at American University’s School of International Service, believes that cultural competency is no longer optional. He’s written a four-book series titled The Global Etiquette Guide, offering practical advice on how firms can become more culturally adept wherever they do business in the world. Foster shared some of that advice on the Knowledge at Wharton radio show on SiriusXM. (Listen to the podcast at the top of this page.)

An edited transcript of the conversation follows.

Knowledge at Wharton: What is the definition of cultural competency?

Dean Foster: It’s the 21st century, and there’s really no wiggle room at this point for cultural ignorance. The opposite of cultural ignorance is cultural competency — the ability to understand that people will be thinking differently, they’ll be doing business differently. They’ve got different expectations about how teams need to be managed, how we communicate, how we solve problems. All of the aspects of business will change and will be affected by culture. If you’re suddenly working with people in another country or on a multicultural team, where you’ve got 20 people in 20 different countries working on a project, you’ve got to understand that we’re going to be seeing all of these aspects of our work differently. We’ve got to line up and understand the cultural influences that are at the table.

Knowledge at Wharton: Do companies have a better general recognition of these issues now than in the past?

Foster: When we first started doing this work — and I’m going back about 25 years now — there really was no recognition that this was on the table. After all, business is business is business. When companies started to stub their toes when they would work with another culture and run into things that they didn’t expect — and things would slow down, things would cost more, things would take more time, and there would be minefields that they didn’t anticipate — then they started to become aware of the fact that maybe there’s something else going on that we’ve got to manage. And that would be the cultural issue.

The mature companies, the Fortune 500s, they’ve been doing this international work for 20, 30, 40 years now, so they get it. They know that they’ve got to develop cultural competencies within their teams. The challenge we have is often getting startups to understand this. The interesting thing is that in today’s world, when you startup, you’re instantly global. You don’t evolve to global. You don’t have a domestic business and then go international and then go global. Today, you have a startup in your garage and you’re global. You’re working with India immediately; therefore, you’ve got to understand the fundamentals of Indian culture that are going to affect how Indians prefer to communicate, how they make decisions, how they organize themselves in teams, their expectations of a manager, how they solve conflict. All of these things are going to be different in India than they are in Indiana.

“It’s the 21st century, and there’s really no wiggle room at this point for cultural ignorance.”

Knowledge at Wharton: Why don’t many startups consider themselves global right out of the gate?

Foster: Because they’re so busy putting out the daily fires, and because it’s taking them 36 hours a day just to develop their company. The last thing you want to think about is something as invisible and fuzzy as culture. I get that. But sooner or later, they’re going to have to come to grips with this issue because it’s on the plate, and it is especially on the plate if you’re working globally.

Knowledge at Wharton: Generations ago, American firms simply imported their policies to other countries where they did business. How has that changed over time?

Foster: What you had were companies that made the assumption that we’ve been so successful at what we do, let’s just export that way of doing things to the new office that we’re opening up in Tokyo or Frankfurt. But what happened is that they ran into problems and figured out, “Oops, we’re doing something wrong.” Inevitably, it was a cultural issue that they had to manage. So, there was a slow and gradual awareness as they went from being a domestic company to an international company to a global company. But that awareness is required immediately from the start, right now.

Knowledge at Wharton: What is the difference between an international company and a global company?

Foster: An international company is when you replicated whatever you did back home in a foreign market. It worked so well, we became so successful at what we did in San Francisco, let’s just do that same thing now that we’re opening up an office in Paris. You are working internationally, but in no way are you a global company.

The differentiation is when you realize that the way you do it in Paris has to be different from the way we did it in San Francisco. When you start to understand the differences and the requirements that you have to do to make it work locally in Paris, then you start to develop a more global perspective.

Ultimately, a global company is one that takes what they’ve learned, the best practices of all the international parts of their company, and brokers those differences throughout the entire organization so that everybody can learn. Because cultures really do present us with the opportunity of doing things in a different kind of way, and that gives us the opportunity to maybe solve problems in a different kind of way.

Knowledge at Wharton: How much does the need for cultural competency affect hiring in locations around the world, both in the C-suite and at lower levels?

Foster: We know that in most organizations today, you can’t get a promotion to the C-suite and you’re probably not going to move up to leadership level without some kind of international experience or international assignment. Organizations are looking for people who have either international experience prior to coming to the company or who are willing to go on to an international assignment to develop this cultural competency.

However we find them, this has now become a requirement for the C-suite because we want people who think globally. So, we’re going to recruit people who have these skills. The question is, how do we assess whether they have these skills? But that assessment is going on, and the more we can identify people with these skills, the more opportunity they have for moving up to a leadership level.

Knowledge at Wharton: Does this cause conflict in trying to hire a local person for a foreign office, rather than exporting someone from the United States to run that division?

Foster: That’s a complicated question because I think when organizations first set up their international office — let’s say, in Shanghai — what they want to do is export the expertise from Chicago to Shanghai because everything that you did that made you so successful in Chicago, let’s give it a try in Shanghai. A lot of it does work and will work.

They’re usually sending someone to represent the corporate culture and the expertise from the home base into the offshore office. But sooner or later, that person finds out that there’s a lot of expertise already there, and that it’s Shanghai-specific expertise. And it’s precisely the kind of expertise that they need in order to adapt all that great success from Chicago to the local market in Shanghai.

“In today’s world, when you startup, you’re instantly global.”

So, there has to be a balance of somebody bringing in the expertise from headquarters and somebody listening to the expertise that’s available locally. There’s always a tension between the local office and the headquarters, because the folks in the local office often feel they have all the local knowledge that the company needs, yet the company is sending somebody from Chicago to run the operations. There’s often a resentment around that issue.

At the same time, the person from Chicago often has to be humbled to realize that, once they get to Shanghai, they don’t have all the answers. They have to rely on this local expertise. Eventually, the person who’s brought over from Chicago does their job. They do their job well. Their three-year assignment is up, and they go on to another location or go home. And that position then gets filled by a local who has now also become familiar with the way things are done in Chicago, but also has the local expertise of Shanghai. I’ve seen that kind of process go on.

I think you’re talking about a long-term process, where eventually the expertise that’s required from both ends gets developed in individuals who are local in that location. But there’s always going to be a need for folks from Chicago to come in there because the company culture is changing, the company direction is changing, and that information has got to be transferred.

Knowledge at Wharton: Are firms understanding that a set of operating standards and procedures for a U.S. office needs to be adapted to suit a foreign office?

Foster: It takes us back to the old slogan, “Think global but act local,” or the fact that we have to adapt what we do successfully at headquarters so that it can be successful locally elsewhere. I think that’s the strategy, that’s the mindset that we need to approach working abroad.

One way of thinking of it is that headquarters back in the States sets global strategy, but that strategy has to be tactically implemented locally abroad. That means that the way we do it has to be different place by place, according to the culture. But what we’re doing can be the same everywhere. It’s not what we do but how we do it that changes.

Knowledge at Wharton: How does this affect the bottom line for many global companies?

Foster: It’s a critical bottom-line issue. It would be wrong to think of culture and the HR aspects of how it affects our work as a soft issue. In fact, it’s a very hard bottom-line issue. For example, we know that when you take a domestic task and try to do it internationally or globally, there is a 60% chance that it’s going to cost more, it’s going to take more time, and it’s going to have a higher rate of failure.

When you interview the folks who were responsible for these global projects — or even something as simple as expatriating an international assignee and family — they will tell you that if you translate that lost income, the extra time, the higher rate of failure into yuan and dollars and pounds and euros, that becomes massive. You’re taking these multibillion-dollar global projects and putting them at risk if you don’t have people who can communicate effectively with each other.

Knowledge at Wharton: Is there a different skillset needed for an international assignment?

Foster: You’re absolutely correct. I’d like to think that the work that we do is eventually putting ourselves out of business! What we’re trying to do is develop these competencies and make organizations aware of the necessity for them. I think it’s kind of unfair to expect major companies to foot the bill for training people to develop cultural competencies. Shouldn’t an employer be able to expect that the people that they hire already come to them with these skills?

“It would be wrong to think of culture and the HR aspects of how it affects our work as a soft issue.”

In school, we want people to develop all the STEM skills that are required — the science, the math, the technology — but we’re not training them at a fundamental level to work globally. They come into a global organization, and now they’re hit with this cultural issue, and it becomes the responsibility of the HR department to very quickly ramp up these skills so that these folks don’t put these billion-dollar projects at risk. I’d like to see the day when the schools are doing this and the universities are doing this so that we’re sending people into the workforce with these skills already in place.

Knowledge at Wharton: Are there firms that have really gotten this right?

Foster: I’ve had the privilege of working with some of those organizations, and some of them are American, many of them are European. It’s interesting that in Europe, there is an awareness of the need for this kind of information, and I think there has been for quite some time. But that is also a cultural issue. Europeans are very familiar with the fact that they experience cultural differences when they go 20 miles down the road and cross a border.

Interestingly, one of the first countries to really get on board with cultural training was Japan back in the late ’60s and ’70s. After the war, Japan realized that the only way they were going to grow and develop the economy was by doing business outside of Japan. They did so with the realization that the rest of the world was quite different from Japan, and that if they were going to work with companies in the U.S., they really had to understand U.S. culture.

The Japanese really put a great effort into developing cultural training for their people who were working outside of Japan. But the U.S. has come late to this whole game, and I think there are cultural reasons why we have. But also, after World War II, the U.S. kind of found itself in charge. And I think the expectation was, “Well, if we’re so successful, the rest of the world will come to us and do it our way.” We’re learning now that doesn’t happen.

Knowledge at Wharton: What is the best way to sum up what companies should be striving for with cultural competency?

Foster: Recognize the fact that you’ve got this cultural issue on your plate. It’s easy to overlook it, but eventually it’s going to come back and bite you if you don’t manage it. That means developing cultural competencies among the people who are touched by global work. Then I would say approach it humbly. You don’t have all the answers. Many of the answers might be found out there, and they may not only be constructive for working out there, but they may even be constructive for working back at home.