3 Embarrassing Examples of Cross-CulturalBusiness Failures

Maybe you’ve seen this scene before while on vacation. It usually goes something likethis: a frustrated tourist tries to communicate with a local that doesn’t speak a word ofEnglish. The tourist, baffled by the lack of comprehension from the local, simply speaksEnglish LOUDER and sloooower. The same words are repeated, over and over again. Ofcourse, this doesn’t help with communication at all. Both the tourist and the local end upexasperated.

Anthony KargePublished Oct 10, 2018

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Anthony Karge

It’s a ridiculous but fairly common scene. As silly as these exchange are, similarmisunderstandings and miscommunication happen on a massive scale in the businessworld. Some companies, lead by the best and brightest leaders, flush away billions ofdollars due to complete cross-cultural failures.

These following stories show why it’s critical to understand your customers andbusiness partners in other parts of the world. Failing to do so leads to disaster. Theseexamples go beyond mere mistranslations and insensitive advertisements. Rather, theyreveal deep-rooted flaws that stem from a profound lack of cross-culturalunderstanding.

Wal-Mart in Germany: A Company Culture That Didn’t Fit

Wal-Mart’s expansion in Germany was nothing short of a disaster. Almost a decade afterlaunching in Germany, Wal-Mart couldn’t find anyone willing to pay a cent for itsassets. Due to the high costs of laying off workers in Germany, Wal-Mart essentiallypaid a competitor in 2006 to take over its real estate and employee liabilities.

How did Wal-Mart, who enjoyed so much success in the US, China, and other countries,get to that point? By failing to understand the culture of their employees and theircustomers. Here are a few places where Wal-Mart dropped the ball, according to myGerman colleagues who shopped at the store.

Germans don’t like – or at least aren’t very used to – very friendly customer service.Having a greeter at the entrance was unsettling. Having staff smile at customers was alsostrange–some male shoppers thought female employees were flirting with them.

Team spirit is a big part of American Wal-Mart stores, with team members doing amorning chant to motivate everyone for the rest of the day. Chanting in Germany is bestsuited for soccer matches and nowhere else, so there were reports of employees hidingin the bathroom in horror to avoid the morning chant.

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Even in higher-end German grocery stores, it’s customary for shoppers to bag their owngroceries. No shopper wants somebody else touching their groceries after paying.Having Wal-Mart cashiers bag the groceries themselves was considered a big no-no.

All those things came together to create an uncomfortable atmosphere for bothemployees and customers. Of course, there were problems beyond the culturemisunderstandings. Wal-Mart simply wasn’t as competitive on pricing compared tolong-established German discounters like Aldi. Still, syncing with German culturewould have helped as they tried to build the brand within the country.

General Mills’ Cake Mix in Japan: A Breakdown in Market Research

General Mills was ready to succeed in Japan in the 1960s. Their line of pre-packagedcake mixes was a huge hit in the US, where customers valued the convenience ofneeding just water, eggs, and the mix to produce a cake. Surely, that convenience wouldbe appreciated by busy Japanese customers. Cake might not be as ingrained intoJapanese culture as in the US, but there still seemed to be a strong market opportunity.What could go wrong?

The product launch was a complete failure, and it had nothing to do with whetherJapanese consumers liked cake or not. The reason for the failure was glaringly obviousafter the fact: just 3 percent of Japanese homes at the time had an oven. Realizing theirmarket research problem, General Mills repurposed the cake mix to work in the muchmore common rice cookers. That never really caught on, so General Mills withdrewtheir cake mixes from the market.

Fast Food in China: How McDonald’s Lost to KFC

No fast food company does international expansion as well as McDonald’s. Meanwhile,competitor KFC always lagged behind the Golden Arches, especially in Asia. WhenChina opened up its borders to international companies in the late 1980s, it would havebeen safe to bet that McDonald’s would continue its dominance.

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That never happened, however. Today, McDonald’s has half the presence that KFC doeswhen it comes to total stores, while losing out to KFC in revenue per store and margin.There are a number of reasons for KFC’s success, such as being first to the market,building a strong supply chain, and deploying a more strategic expansion plan. However,a big reason for KFC’s success is that it adapted to the local culture while McDonald’sinitially refused to cater to the tastes of Chinese customers.

McDonald’s had great success with its line of American-style burgers when expanded toJapan and other Asian countries. They stubbornly decided to roll out the same line ofproduct that worked in nearby countries. The difference between those countries andChina is that the latter had no frame of reference for burgers. The country was closed offor so long that burgers seemed too strange and fore. KFC, meanwhile, had theadvantage of offering fried chicken, which is a familiar food for people in China. Theyalso took active steps to localize their menus for the Chinese market, and their wildlysuccessful breakfast menu featuring staples like congee is a testament to theirlocalization efforts.

McDonald’s has since learned from its mistakes and and enjoys a strong position inChina’s fast food market. But due to their botched rollout, they’re still a laggingcompetitor to KFC’s market position. A little localization goes a long way, especiallywhen it’s done correctly from the start.

Lessons Learned

Even the biggest budgets and past international success doesn’t guarantee future resultswhen breaking into a new market. A sense of a hubris, however, guarantees failure. AsMcDonald’s, Wal-Mart, and General Mills learned, it helps to have local experience anda full understanding of the new markets.

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