Despite recent talks of Brexit, President Trump’s “America First” and numerous predictions of a US China trade war, the world is most likely to remain connected as long as Globalization takes place. So what is Globalization? One of the most common definitions explains Globalization is the integration among the people, government and companies of different countries (Rothenberg, 2003) whilst another definition states, it is a process leading to greater interdependence and mutual awareness (reflexivity) among economic, political, and social units in the world, and among actors in general (Guill´en 2001, Held et al 1999, pp. 429–31, Petrella 1996, pp. 63–66, Waters 1995, p. 63).
Thus, Globalization can be defined as the movement of goods, services, resources, capital, people, information, culture and ideas across borders increasing connectivity amongst countries across the globe for various reasons. Whilst some scholars believe, Globalization is a process driven by International Trade, Investments and Information Technology affecting the environment, political systems, culture, economic development, prosperity and human well being of the countries around the world. This belief is supported Paul Rawlinson’s article titled “A prediction for Globalization in 2018” for the World Economic forum, which says, we are now witnessing a “multi-speed globalization”. Where “collaboration against competition; connection against protectionism; inclusion against rejection, transparency against privacy” will be four critical factors that will connect the world more than ever before.
However, numerous analyst predictions have also shown Globalization would be further fuelled by four main superpowers called the BRIC nations (Brazil, Russia, India and China) by 2050 alongside the United States of America. Hence, any country that is a strong ally, trading partner or having smooth diplomatic relations with one or more of the four BRIC nations are most likely to benefit through numerous lucrative opportunities in the long term perspective.
In the context of Sri Lanka and China, the foundation of the friendship was initially laid out in the 5th century with the visit of the famous Chinese monk Faxian to learn Buddhism and thereafter by the visit of Admiral Zheng He, Navigator of the Ming Dynasty during the 15th century. Since then, a strong relationship of equality, friendship and mutual beneficial cooperation was formed between Sri Lanka and China, with the signing of Sino-Lanka Rubber-Rice Pact in 1952 and the establishment of formal diplomatic relations in 1957. Thus gradually through various high level visits, discussions and agreements between the two countries related to economic, military, infrastructure development and technical assistance to Sri Lanka, in May 2013 both countries decided to upgrade the China-Sri Lanka relationship to the Strategic Cooperative Partnership of Sincere Mutual Support and Ever-lasting Friendship. In addition, both countries are also in the process of negotiating a China-Sri Lanka Free Trade Agreement (FTA) to improve bilateral relations in several sectors such as Tea, Coconut, Rubber, Gems & Jewelry and many others. Whilst the recent expansion of Bank of China’s local branch in Sri Lanka during March 2018 truly indicates, it is only the beginning of setting up the initial financial bridge to connect the world of opportunities between both countries in the years to come.
Mainly because with increased Globalization it will also open up diverse avenues for International Business (IB) and Foreign Direct Investments (FDIs) across borders into all kinds of different industries like Power and energy, Infrastructure, Telecommunications, Manufacturing to any more. In the book “International Business: An Operational Theory,” Richard A. Farmer and Barry M. Richman (1996) explained IB is generally business operations of any sort by one firm which take place within or between two or more independent countries. Further IB is subdivided into various branches of study such as: export and import trade, comparative advantage, comparative economic system and functional business analysis along with a few others. This definition of IB is further backed by the theories of Smith, Ricardo and Heckscher-Ohlin on Absolute advantage, Comparative advantage and the Heckscher-Ohlin theory which explains why countries trade and the numerous benefits of International Business between two or more countries.
IB has numerous advantages creating a win – win situation for all countries trading with each other. Such as: a major source of foreign exchange, optimum utilization of available resources, division of labor and economies of scale, a wide variety of goods and services at reasonable prices for consumers, cultural development and improvement in the standard of living to creating job as well as new business opportunities, thereby leading to higher government revenue and sustainable economic development. However, colonization, exploitation of resources and legal problems are some of the costs of engaging in IB.
On the other hand, The International Monetary Fund (IMF) defined FDI as the investment that involves a long-term relationship reflecting a lasting interest of a resident entity in one economy (direct investor) in an entity resident in an economy other than that of the investor. Meanwhile according to the World Bank, FDI refers to the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise, operating in an economy other than that of the investor and can be further developed as the sum of equity capital, reinvestment of earnings, other long term capital and short-term capital as shown in the balance of payments in that economy. Further the Organization of Economic Cooperation and Development (OECD) defines FDIs as owning 10% or more of a business. Where businesses that make foreign direct investments are also called Multinational Corporations (MNCs) or Multinational Enterprises (MNEs). Moreover, a MNE may make a direct investment by creating a new foreign enterprise called a Greenfield investment or by the acquisition of a foreign firm called an acquisition or Brownfield investment.
According to the latest available statistics of the OECD, as shown in chart 1.5) FDIs have become increasingly popular in the recent past due to several reasons.
Despite the volatile trends seen from 2005 to 2016, the World Investment Report 2017 published by the United Nations Conference on Trade and Development expects to witness a 15% increase in FDI flows to Asia in 2017 amounting to $515 billion on the back of improved economic outlook in key Asian economies. This is mainly due to the easy accessibility of markets, resources and also the ability to reduce costs of production by co-operating with each other instead of competing with one another on scarce resources. Thus, as per chart 1.6) we can see that China has now emerged as the world’s second largest outbound FDI investor after the US with a c.30% YoY growth in 2016 to a record high of $188.8 billion exceeding its inward FDIs with a large gap.
Meanwhile, from chart 1.7) it can be observed that during 2011 – 2015 when the US encountered a decline of FDI flows and countries like Japan, Netherlands and Germany saw a slight volatility in FDI flows, China had a steady increase in FDI flows even surpassing Japan in 2014. This was mainly due to Chinese enterprises stepping into a new era of global expansions where non-financial outward FDIs grew by 44% in 2016 across 164 countries and regions. Moreover, driven by industrial transformation and upgrades, slow down of the Chinese economy and fluctuations in the Renminbi exchange rate, more Chinese enterprises opted to “Going Global” for better prospects. Thus, 622 overseas Mergers and Acquisition (M&A) deals were announced totaling to $221.7 billion (+147% YoY) in 2016.
From chart 1.8), we can see Hong Kong was the top recipient of Chinese FDIs in 2016 with a c.61% share followed by The Netherlands, Singapore and Cayman Islands. However, when analyzing the FDI flows into the Belt and Road Countries and Regions, chart 1.9) depicts Singapore at the top followed by Russia, India and many South East Asian countries like Vietnam, Laos, Cambodia and Thailand.
Hence, by taking a deeper dive to understand the Sino-Lanka ties in terms of IB and FDIs, some interesting findings during 2016 are as follows:
? The main source of imports for Sri Lanka
According to the data from the Central Bank of Sri Lanka’s Annual Report (2016) China surpassed India (which was Sri Lanka’s main source of imports since 2001) as the main origin of imports in 2016. Thereby, accounting for a c.22% share of the country’s total import expenditure bill with imports amounting to $4.2 billion (+13.6% YoY) as shown in chart 2.6). This was mainly due to higher imports of electronic equipment, machinery, iron and steel as well as fabric and textiles with many others from China.
? The second highest origin country of tourist arrivals
According to chart 2.7) from the statistics released by the Sri Lanka Tourist Development Authority (SLTDA), China was the second highest origin of tourist arrivals in 2016 with 251,577 arrivals (accounting for a c.13% share of the total arrivals) and recorded a growth of c.26% YoY. This was a steady growth from 2012 where many tourists travelled for leisure and holiday purposes with family and loved ones given Sri Lanka’s variety of attractions from the golden sandy beaches, lush rainforests to breathtakingly beautiful mountains and waterfalls, unique traditions, rich culture and heritage to many more.
? The main foreign direct investor in 2016
As depicted in chart 2.8) due to inconsistent policies and political in-stability of the current Government of Sri Lanka alongside the US Fed rate hikes and the credit crunch experienced in the Euro zone, Sri Lanka’s FDIs declined by c.62% YoY in 2016 to $445 million.
This was mainly due to the debt repayment and balance of payment crisis faced by Sri Lanka after the new coalition party led by President Maithreepala Sirisena and Prime Minister Ranil Wickremasinghe came to power in 2015. Budget proposals and delays in implementing tax revisions, VAT revisions along with regulations on land and asset ownerships were the key reasons for policy uncertainties that discouraged many FDIs into the country.
Therefore, given challenging times to balance economic growth amidst survival from dynamic changes in the global arena, China’s investments, assistance and aid to Sri Lanka were indeed a great source of strength. How? During 2005-2015, with reference to chart 1.3) China invested billions of USD in Sri Lanka to improve the country’s infrastructure by constructing roads, highways, ports, airports, water and irrigation projects as well as supported the power and energy sector through building power plants. Chinese investments also flowed to the telecommunication sector, ICT industries, shipping and logistics as well as to the apparel industry due to lower labor costs in Sri Lanka compared to other South Asian Countries. In 2009, China also played a crucial role in supporting Sri Lanka to end the civil war with the LTTE by supplying military equipment and ammunition for money or soft loans when other countries imposed sanctions on providing military assistance to Sri Lanka.
In addition, as depicted in chart 2.9) China was also Sri Lanka’s main lender in 2016 with a share of c.34% in the forms of ODAs via loans, grants and aid with the recommencement of several mega scale projects that were halted when the new coalition government came into power claiming that Chinese debt was too costly for Sri Lanka to bear.
However, after several negotiations and discussions between the two nations, China’s acquisition of the Hambantota Port for $1.1 billion (c.70% stake) also caused a revival of interest on the Colombo Port City, (the biggest investment by China for $1.4 billion) making Sri Lanka a strategic partner under China’s One Belt One Road Initiative for the coming future.
As a result of the growing economical, political and strategic relations between Sri Lanka and China, one of the most important factors affecting Chinese investors and entrepreneurs when entering Sri Lanka is the Culture. Culture has been defined by various scholars and researchers in different ways due to its multifaceted nature. Some scholars explained culture as the differences amongst communities, social classes, nationalities, societies and so on. Geert Hofstede (1991) defined culture as the collective programming of the mind which distinguishes the members of one group or category of people from those of another. Whilst Kroeber and Kluckhohn (1952) defined culture as the patterned ways of thinking, feeling, and reacting, acquired and transmitted mainly by symbols, constituting the distinctive achievements of human groups, including their embodiments in artifacts; the essential core of culture consists of traditional (i.e., historically derived and selected) ideas and especially their attached values. Meanwhile culture was also defined at the basic level as shared symbols, norms, and values in a social organization (Walsham, 2002). In addition, national culture refers to deeply set of values that are shared by members of a nation (Gurung and Prater, 2006). Thus, regardless of numerous definitions and explanations culture can be defined in simple terms as the way and mere essence of life that creates the holistic relationship of a country or nation’s unique identity, beliefs, norms, values, activities, rules, customs, communication patterns and so many more.
As shown in chart 2.10) Culture has also been explained by Edward Hall as an iceberg, where the surface culture including cultural aspects like food, dress, language, literature and others adding up to 10% is above the water. Meanwhile 90% of the iceberg which includes the shallow and deep culture with high and intense emotional aspects such as thoughts, behaviors, social interactions and communication along with others are below the water.
Therefore, when looking at Sri Lanka through a cultural lens, though the surface culture may look very simple and easy to understand, the shallow and deep culture is what makes the national culture unique and different from the other South East Asian countries. According to the statistics from the National Census of 2012, we can see that Sri Lanka is a multicultural society. This is because, Sri Lanka is home to near 19 ethnic groups following 5 main religions and 3 commonly used languages.
Chart 2.11) shows the main ethnic composition in Sri Lanka in 2012. Most of the Sri Lankans were Sinhalese (75%), followed by Sri Lanka Tamils (11%), Sri Lanka Moors (9%) and other smaller ethnic groups such as The Veddas (the indigenous citizens), Dutch Burghers, Malays, Sindhis, Memons, Kafris, Paris, Gypsies and others including a community of Chinese migrants who came to Sri Lanka during the World War II and China-Japan war. Thus, each of these ethnicities had their own traditions, customs, beliefs and value systems, albeit they were all Sri Lankans by nationality. Also as shown in chart 2.12) the main religion followed in the country was Buddhism (70%) followed by Hinduism (13%), Islam (10%) and Roman Catholic (6%) and Christianity (1%). Moreover, Sinhala and Tamil are the most commonly used languages in Sri Lanka whilst English has now become the official language for education and business purposes.
In order to get a better understanding of any country’s culture, as shown in chart 2.13) Geert Hofstede’s 6-D model can be used to compare and contrast the business culture of Sri Lanka with China using six deep drivers. Mainly because Chinese investors and entrepreneurs will always compare the foreign country’s culture with their home culture before choosing or deciding to make any investment decision.
What is the 6-D model? The 6-D model is the most widely used frameworks for understanding the national culture of a country using six dimensions developed by Geert Hofstede, a Dutch social psychologist and management scholar. The six dimensions – Power distance, Individualism, Masculinity, Uncertainty avoidance, Long term orientation and Indulgence were derived from the data collection and analysis from a survey conducted for 116,000 IBM employees from more than 50 cultures during 1967 to 1973. The survey was focused on studying how values in the workplace were influenced by culture and questions were aimed in an attempt to identify the cultural difference from the participant’s job and work settings. The initial study had only four dimensions and later was updated to include two other dimensions, namely Long term orientation and indulgence.
The most important cultural dimension is the Power Distance Index (PDI) defined as the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally. A high PDI of 80 for both China and Sri Lanka indicates an unequal nature of power and wealth in the society. In the context of China, the subordinate-superior relationship tends to be polarized and society believes that inequalities amongst people are acceptable. This can be observed both at the family level and also in work places, where elders and seniors are most often the main decision makers. In addition individuals tend to be influenced by formal authority and sanctions, generally with tall hierarchical organizations and generally people are optimistic about the capacity of leadership and initiatives. Meanwhile, Sri Lanka is also a hierarchical society by nature where everybody has a place with wide salary ranges between the top and bottom. Moreover, centralisation is popular where subordinates expect to be told what to do and the ideal boss is a benevolent autocrat.
The dimension of Individualism has been defined as the degree of interdependence a society maintains among its members. It addresses more on the context if citizens or employees consider their self image as “I” or “We”. Generally, in Individualist societies people are more concerned in looking after themselves and only their immediate family. Whereas in Collectivist societies people perceive themselves to belong to ‘in groups’ that take care of them in exchange for loyalty. China’s low score of 20 on this dimension indicates China is a highly collective society by culture and people act in the interests of the group more than themselves. Sri Lanka’s score of 35 on this dimension indicates the country is also more collectivist in nature with close, long term commitment and relationships. Thus, both countries tend to have preferential treatments at home and at the work place for closer in groups and members of such in groups usually work more co-operatively with each other, but can be cold or hostile to out groups. In brief, offence is considered to lead to shame and loss of face whilst personal relationships are perceived to get the upper hand over task and company.
A high Masculinity score indicates that a society will be driven by competition, achievement and success while a low score indicates the society is a more feminine society with the dominant qualities stilting towards caring for others and quality of life. China’s score 66 is an indication that China is a masculine society that is success oriented and driven by the desire to be the best in any task they do. These qualities can be seen in the hard working nature of Chinese people where they usually tend to work for longer hours and are willing to sacrifice their leisure time to achieve their goals. Sri Lanka is different on this dimension with a score of 10 indicating it as a more feminine society. Therefore, Sri Lankans tend to focus more on “working to live” ideology with people valuing equality, solidarity and quality in their lives. Conflicts are resolved by compromise and negotiation whilst incentives like flexibility and free time are preferred over monetary compensation.
Uncertainty avoidance deals with the way or the extent to which a society handles or feels threatened by the ambiguous and unpredictable nature of the future. China’s low score of 30 means the Chinese are comfortable with a degree of ambiguity, which can be observed from the Chinese language and sayings of renowned scholars like Confucius and teachings of Taoism. Even though the meanings can be difficult to understand by Westerners, for the Chinese those words and sayings are filled with immense wisdom and knowledge. Chinese are flexible, adaptable and entrepreneurial in nature and most Chinese businesses tend to be small and medium or family owned enterprises. Meanwhile, Sri Lanka’s relatively intermediate score of 45 indicates that Sri Lanka is also willing to accept a fair degree of uncertainty like China and thereby try out new ideas, innovative products and different technology. Thus, Sri Lanka tends to be more tolerant of the ideas and opinions of others as well as to be adaptable to changes in the external environment.
Long term orientation describes how a society maintains links with its past whilst facing the challenges of the present and plans for the future. Normative societies with a low score prefer to maintain time-honored traditions and norms while looking down upon new changes. Meanwhile a society with a high score generally takes a more pragmatic approach, encouraging thrift and efforts in modern education as a way to prepare for the future. China’s high score of 87 is a strong indication the country has a very pragmatic culture. The Chinese believe truth depends on the situation, context and time. They also show an ability to adapt traditions easily to changed conditions, a strong propensity to save and invest along with thriftiness for future generations and perseverance in achieving results. Further, given the records dating back as far back as four thousand years ago regarding the rich Chinese culture, it is no surprise at all that adaptation, hard work, perseverance and strategic planning for future endeavors has been solidified into the Chinese society as well as their culture. On the other hand, Sri Lanka’s intermediate score of 45 means that Sri Lanka tends to be a normative society that prefers to follow the old traditions and customs with a short term view. However, Sri Lankans also have the similarity with China on the propensity of thriftiness and savings for the future.
Indulgence is the latest addition to the 6-D model and looks into the extent to which people try to control their desires and impulses depending on the way they were raised. A tendency toward a relatively weak control over their impulses is called indulgence, whereas a relatively strong control over their urges is called Restraint. Although Sri Lanka does not have a score on this dimension yet, China’s low score of 24 indicates China is a retrained society with a tendency for cynicism and pessimism. People from restrained societies perceive that their actions are restrained by society and feel that indulging themselves are somewhat wrong and bad to do.
However, in spite of the wide popularity of Hofstede’s 6-D model, some scholars have raised many concerns and arguments against it, limiting the overall learning from the theory. The relevance of the study in today’s context and the out datedness of the findings as the surveys were done more than 50 years ago are some of the key issues pointed out. At the same time, the bias created from restricting the survey only to IBM employees have also been identified as another limitation where a national culture cannot be assumed as represented by a small subset of employees from a specific organization. Mainly because, the employees upbringing, the home environment, the culture they were exposed at school, high school, university to many other factors such as individual preferences, values, norms and behaviors also influence their individual response to the survey during the period.
As seen above, due to the cultural differences between China and Sri Lanka, two important factors that are crucial when engaging in IB to better understand a country’s business culture are Business Etiquette and Communication. As it will definitely be a competitive advantage for China to be culturally sensitive on the business environment and culture, as how to do business in Sri Lanka the right way. Especially if Chinese investors understand how the business world operates in Sri Lanka, the do’s, the don’ts, customs, traditions and how Sri Lankans communicate when doing business, it will be more smoother and easier to do business instead of learning through the hard way of trial and error.
In simple terms, etiquette is defined as the forms, manners and ceremonies established by convention or norm as acceptable or required in social relations, in a profession or in official life. Therefore, in the context of the business world, Business etiquette is a set of rules that allow communication and interaction in a civilized manner. These arbitrary rules involve the rites and mores, forms and manners that are required in a society or profession (Moore, 1998, p.1). Another definition can be described as guidelines for conducting business with ease, style, and confidence (Casperson, 1999, p. 2). Moreover, it is also the art of knowing how to behave in a given situation and knowing how to interact with people. Etiquette was also explained as the guideline for knowing how to behave appropriately in all situations (p.9). Therefore, the topics of first impressions, greetings, person to person interactions, dress code, punctuality, negotiation styles and many other factors under Business etiquette plays an important role. Especially to avoid cultural clashes, personality clashes, crisis situations, criticism or misunderstandings and to truly respect, show courtesy as well as to accept the cultural differences when doing business in Sri Lanka is a must.
Meanwhile the word communication comes from the Latin word “Communicare” meaning “to make common” or “to share” (Weekley, 1967, p.338) with an assumption that communication evolved or was derived from the basic human behavior that arose from the need to connect and interact with other human beings. Thus communication can be described as the act and process of sending, receiving and understanding messages among people for various reasons. Such as social, practical, decision making or personal growth. Therefore, Hall (1977) is indeed correct when he said, communication is culture and culture is communication. Hence, communication and culture are inseparable (Samovar, Porter & Stefani, 2000, p.34) because both these elements are interdependent on each other to a great extent.
General communication has several branches and business communication is one such special branch where communication takes place between two or more parties for business affairs to achieve organizational goals. Mainly it involves the exchange of ideas, information, attitudes, perceptions and many more with the sole objective of conducting business activities. Usually the parties involved are business owners, employees, customers, investors, suppliers and stakeholders like bankers, general public, government and so forth.
However, as depicted in chart 2.14) just like for general communication, all the other aspects of communication applies in business communication as well. Especially when doing business in Sri Lanka, verbal communication during face to face or telephone conversations or virtual meetings as well as non verbal communication through certain gestures, posture or facial expressions may be misunderstood by Chinese investors due to cultural insensitivity. Also how and when formal communication is used instead of informal communication are a few areas that could be misinterpreted by Chinese investors. Thereby leading to severe repercussions such as misunderstandings, hurting another person’s feelings and conflicts of interests when engaging in IB or discussing about potential FDIs.
This is mainly because as shown in chart 2.15) according to the modified Transactional model of communication by Wood (2006) and Alder ; Towne (1996), even in business communication there will be many messages sent back and forth through several channels with numerous noises and influences affecting the conversation (both internal and external).
In the upcoming sections, a detailed examination of the ice bergs – Sri Lanka and China will be done through a cross cultural comparison to get a better understanding of the business cultures in both countries. How? Through a case study analysis of a successful Chinese company in Sri Lanka through a cultural lens. Specifically, the two areas of focus would be business etiquette and communication, as to how, what strategies were used and why the company succeeded given a short period of time compared to other Chinese companies that had a hard time surviving in Sri Lanka, a country filled with immense potential and opportunities.