Doing business in Mexico: understanding cultural differences.

New field research clarifies how cultural differences play a role in U.S.-Mexican business alliances.

The North American Free Trade Agreement (NAFTA) has sparked a tremendous increase in business activity between U.S. and Mexican firms, boosting the two countries' already immense trade. But this new activity also has brought a vital issue to the forefront: In the coming years, as NAFTA reduces or eliminates many trade barriers and fosters closer business alliances, a company's ability to manage cross-cultural and cross-national differences will be more critical than ever.

A number of recent events suggest that this will be an enormously difficult task. These include the devaluation of the Mexican peso and the dissolution of high-profile joint ventures, such as those between Corning and Vitro, and Burlington Northern and Grupo Protexa. In recent years, many U.S. companies have experienced disparities in management and business practices in Mexico. For new U.S. entrants into Mexican joint ventures, such disparities provide even greater challenges. To resolve cross-cultural differences, these firms may need to use managerial approaches different from those that have proven successful in a single-culture context. A Mexican marketing manager sums it up well:

[It] seems to me that the most important issue we have to face is that we have cultural differences, no?...In Mexico, we are in a transition time...We are changing rapidly from a business point of view and from a management style...We [still] have cultural differences we have to face. We have to recognize that and face that in order to understand much better, no?

With that in mind, we conducted a study of managers and professionals involved in Mexican-U.S. joint ventures. Our goal was twofold: First, to gain firsthand knowledge and understanding of the ways in which cultural differences challenge or disrupt managerial interactions in joint ventures. Second, to identify ways in which individuals and organizations can circumvent or overcome these challenges.

To those ends, we conducted 21 intensive interviews with Mexican, U.S., and third-country nationals who worked as executives, managers, or professionals in firms involved in joint ventures or providing services to them. (The interviews were conducted in 1994 in Mexico City and Chihuahua.) We also interviewed Mexican and U.S. government trade officials and reviewed the management literature.

Additional data were collected through a 1994 survey of Mexican managers and professionals participating in an evening MBA program in Mexico City. We obtained other observations and insights into managerial practices during visits to maquiladora manufacturing plants in 1993, visits to leading Mexican business schools in Puebla, Mexico City, and Chihuahua, and from our personal experiences while living in Mexico and South America.

Not surprisingly, the management literature is unequivocal about the difficulty of establishing joint ventures, even under the best of circumstances. Cross-national alliances almost certainly lead to conflicts when deeply held cultural assumptions initiate or compound differences in organizational processes, technology, and other factors. Cultural values often lie at the heart of these challenges, making it difficult to resolve the problems. But the consequences of ignoring culturally based challenges can be severe; they may include extended periods of poor performance, disharmony, missed opportunities, and, as noted earlier, even the dissolution of a joint venture.

Thus, insights into cultural differences can help managers develop unique and effective ways to meet the challenges. First, however, they must understand the nature of the problems that may arise when people from two diverse cultures interact closely with one another. Unfortunately, many Mexican and U.S. companies have entered into joint ventures or strategic alliances with provincial attitudes and little or no international experience. As a result, they may lack the cultural understanding and sensitivity needed to build successful relationships with cross-cultural partners. One Mexican executive stated:

One of the ingredients of a successful joint venture is [to be] educated as to how things are done outside...[Some U.S. executives] smell a good opportunity and they want to do something in Mexico...And some of these men have never been [or] done anything outside the States, you know, and so the world is the way it's done back home. They are ill-equipped. The same thing happens with a potential partner in a joint venture with a Mexican individual [or] entity, no? You've got an individual who has never done business outside Mexico and hasn't been exposed to how [the partner] operates. You have the makings of a potential disaster...

Indeed, our study found that national culture has a powerful influence on people's interpretations, understandings, and assessments of those with whom they work. Cultural values can affect decision making, managerial style, interpersonal trust, teamwork, and the role of women in the workplace, among other issues. Here, we explore four broad-based cultural values that can influence the success of Mexican-U.S. joint ventures and alliances. These values are power distance, uncertainty avoidance, individualism/collectivism, and masculinity.

WHEN POWER DISTANCE IS A HANDICAP

In his ground breaking work on cultural values, first published in Organizational Dynamics, Geert Hofstede defined power distance as the extent to which people accept unequal distributions of power. Later research showed that Mexico and the United States differ greatly in this respect, with Mexicans being much more willing to accept power distance than are Americans. (The two countries scored 81 and 40, respectively, in that research.) Our interviews of Mexican and U.S. managers and professionals suggest that this difference manifests itself in the following ways:

Managerial Style

The Mexican managerial style has been characterized as autocratic and paternalistic. Many of the managers we spoke with, however, indicated that an exclusive reliance on an autocratic style is not likely to lead to success in Mexico. Today's managers and professionals, in particular, do not respond well to directives and commands, although they may have done so in the past. These employees are less accepting of autocratic styles than are lower-level workers.

Furthermore, managers can better gain employees' commitment to directives by informing all levels, including the rank and file, of the underlying reasons for their decisions. However, we found wide agreement that supervisors and subordinates in Mexico maintain a greater social and professional distance than do their counterparts in the United States. Mexican subordinates are more deferential and less likely to challenge or oppose a supervisor's ideas or directives, especially across hierarchical levels. While participatory styles have become more appropriate in Mexico, many employees still hesitate to provide decision-making input or assume decision-making responsibilities and risks.

A reluctance to challenge decisions also appears to stem, in part, from the greater respect and sensitivity employees offer to other workers of all ranks, both within and across hierarchical levels. Mexicans are far less tolerant of abrasiveness and insensitivity in managerial styles than are Americans. This style is antithetical to gaining subordinates' support and compliance.

One manager said, "Is it not true that good managers are understanding no matter where they are? And bad managers are not?" Another indicated that his workers show both respect and affection for him by referring to him with the diminutive Inge (for engineer) instead of the professional title of Ingeniero. This example of respectful yet informal address exemplifies the formal and informal duality of the Mexican managerial style.

Although the predominant Mexican managerial style may be authoritarian, a company's ownership and stage of evolution also influence differences in style. Mexican managers who work for multinational corporations in Mexico, such as Ford and Johnson & Johnson, generally seem more similar to U.S. managers than those who work for Mexican firms. Further, managers in high-standards Mexican companies that have close contact with U.S. firms, such as many in the northern regions, have developed managerial styles much more similar to those of American managers.

In the past, however, some U.S. managers have had a hard time developing an appropriate interpersonal style, especially in their dealings with unskilled, semi-skilled, or less well-educated employees, as indicated by Mariah de Forest:

As in any authoritarian order, Mexicans value status and its observance. Americans regard status as "undemocratic" and try to minimize the differences by dressing casually, calling [someone] by his/her first name (and insisting that we be called by our first name). Americans try to train Mexican supervisors to do the same. But Mexicans accept the hierarchy and their "stations" in life. To them the issue is honor, not equality. Rather than resent their "rank," workers expect respectful recognition of their roles within the hierarchy. Even the janitor expects respect.

Despite these power differentials, one U.S. expatriate observed that, "In Mexico they will say 'yes …