By Rick Molz
Below, Rick Molz develops an explanation of conflicts and incompatible interpretations of events between agents of multinational corporations and actors present in certain host countries. Within different socio-economic systems a dominant logic is developed, and this becomes internalised among actors and agents. This dominant logic becomes a strong indwelt understanding of the world, making it difficult for agents or actors to comprehend alternative worldviews.
Tom Albanese, CEO of Rio-Tinto, had a problem. Rio-Tinto had begun investigating the possibility of mining operations in Guinea in 1997, leading to an agreement with the government of Guinea to develop a world class mine in Simandou. All was progressing well until 2008, when the government of Guinea expropriated half of the development. Fast-forward to 2011, and Rio-Tinto was in danger of loosing the second half of the mine. The issue was resolved only when Rio-Tinto agreed to pay an additional $700 million to the government of Guinea.
Economic activities occur in a local context, with each nation, region or locality having a different pattern of social relationships, values and traditions.
Is this evidence of ineptitude on the part of Rio-Tinto? Or is it evidence of the government of Guinea blackmailing one of the world’s richest multinational corporations? My research indicates it was neither. It was a case of two different worldviews, one grounded in an economic rationality, and the other grounded in indigenous tradition and protection of local values. In 2008 Mr. Albanese met with Mohamed Lamine Fofana, the Guinean Minister of Mining to discuss a resolution to the discontent. After the meeting Mr. Albanese described the meeting as “a time for congratulations”, while Mr. Fofana refused to reconsider the government’s expropriation.
Economic activities occur in a local context, with each nation, region or locality having a different pattern of social relationships, values and traditions. These soft patterns are as real and influential as the more formalised and codified knowledge used by global multinational corporations. I think about actors and agents. Actors are individuals who make decisions based on their indwelt knowledge that is a reflection of the social relationships, values and traditions that have grounded their entire life. Agents are multinational corporation executives and managers who make decisions based on well-defined economic and financial principles that will lead effectively and efficiently achieving corporate objectives. Agents are individuals who have learned “the way business is done” through formalised graduate education, years of managerial experience and the legitimisation of a corporate hierarchy. Actors have learned similar lessons about “the way life is lived” through tradition, experience within a community and the legitimisation that comes with support from the local populace.
These patterns of decisions are a reflection of a dominant logic that has been internalised by the actors and agents. The life experience of an individual is internalised into a prism that shapes the way he or she sees the world; a sense of right and wrong, a sense of justice and injustice, a sense of how to balance tradition and financial objectives, a sense of how to balance long term and short term. A dominant logic is the way an individual conceptualises and makes critical decisions about events. While this may seem like a genteel philosophical discussion, I argue failure on the parts of Mr. Fofana and Mr. Albanese to grasp this concept proved costly to the people of Guinea and the shareholders of Rio-Tinto. In my view, neither understood they had internalised a worldview and logic that was fundamentally different from their counter part. The same words, observations and discernible reality had different meanings. What to Mr. Albanese was a time for celebration was for Mr. Fofana a time to hold on to the expropriation of half of Rio-Tinto’s holdings.
Those of us grounded in the world of finance, multinational corporations, consultancies and business schools see the world through a lens of a global economic logic. This logic is grounded in economic rationality, financial cost benefit and risk analysis. It is largely a concrete epistemology.
Actors in developing countries see the world differently, through a lens of tradition, community, sharing of burden and benefit, and informal interpretations of rationality. While the multinational manager might consult financial or economic models in making a decision, the local actor might consult community elders or family members.
The problems occur when each fail to understand the legitimacy and logic of the others’ worldview. The two decision makers do not understand one another. For each their own pattern of decisions is completely rational and self evident, while their counterpart evokes a pattern of decisions based on fallacies, misunderstandings and irrationality. For one, time is money. For the other, time is for family and revered traditions. For each to think otherwise is foolish. Recall another colossal failure to understand. In 2000 multinational Bechtel was engaged in a project in Bolivia to improve the quality and delivery of water to the population. Conflict developed. For Bechtel water was a valuable and scarce resource that could be best utilised through economic modeling and financial incentives, while for the local population water was a gift from mother earth. Why was it a surprise conflict developed?
Table 1 compares the characteristics of the Global Economic Logic and the Local Traditional Logic.
To make this more concrete, let me describe two hypothetical individuals who would be representative of the two logics.
Elie was born in Mopti, Mali; his father grew millet and his mother had a stall in the local market, where she sold produce. Elie grew up speaking Bambara and French; attended school in Mopti and studied French literature at the University of Mali in Bamako. Upon completion of his studies he returned to Mopti, where he taught French. He continued to live with his extended family, and often visited the local market to obtain the necessities of life. Such market visits would last several hours, and were always pleasant, as it was a time when Elie could enjoy talking with friends and acquaintances. When seeking advice on difficult issues he would consult with the elders of Mopti and his family. Such consultations might continue several months, as whenever an important decision was to be made it was essential to move slowly, reflect and consider the wisdom of the community and the implications for not only his life, but the life of his future family and all those within the community. Elie was highly motivated to protect his community and family, both in the present and for whatever might occur in the future. As someone who was university educated and fluent in French, Elie became recognised in Mopti as an important representative of the community during visits from national officials, foreign dignitaries or leaders of non-governmental organisations. He could interact with such people effectively and with dignity.
Sigrid was born in Salzburg, Austria. She was the daughter of a successful entrepreneur who had built a moderate sized machine tool company. Sigrid spoke German and English, and attended the Graz University of Technology, where she studied computer engineering. Upon completion of her degree she worked for a year in her father’s business, but became bored and applied to several prestigious MBA programs in North America. After finishing her MBA she was hired by a major German multinational corporation into their New York office. Over time she was promoted into ever more senior and challenging positions. Sigrid married a classmate from her MBA program, and they were able to pursue parallel professional careers. Both were excited about enjoying the opera, and she and her husband had developed a community of friends from the opera sphere. They would take several weekends each year to travel to Europe with friends for opera and shopping. Her husband, colleagues from work and those in the opera community were key counselors and advisors when she had to make a difficult decision, and through these close connections she could often resolve complex issues within a week or two. Sigrid became a key public representative of both the multinational corporation, and also for the governing board of the opera company.
Both Sigrid and Elie are honorable people, reflecting the values and dominant logic of their referent communities. Because they have completely internalised these soft attributes into their mental models, they can hear the words, observe and even respect the dominant logic of the other, without being able to comprehend or understand. They hear the words, but the logic and persuasiveness of the other is absent. They are able to interact but not understand. There is a void when it comes to negotiating interactions between the multinational corporations Sigrid represents with the local community Elie represents.
Those of us grounded in the world of finance, multinational corporations, and business schools see the world through a lens of a global economic logic. Actors in developing countries see the world differently, through a lens of tradition, community, and informal interpretations of rationality.
What to do? Most corporations will provide coaching and training programs for managers prior to expatriate assignment. Unfortunately, this is hardly sufficient to create deep understanding of alternative worldviews. Ideally corporations would include such considerations in their early career recruiting processes, recognising the value of hiring people from less developed countries, those who have served in volunteer positions in less developed countries, or selecting military veterans who have served in underdeveloped regions, particularly when their duties required collaborative interaction with the local population. For more senior managers and executives, developing a month long program for the new expat to live life within the local community would be helpful. It may seem naïve to expect a senior manager of a multinational to share community space with a family in Zambia or Bangladesh, but if the payoff is a harmonious relationship and being able to recognise the legitimacy of alternative worldviews, it can be a good investment for the corporation.
Perhaps for Rio-Tinto the $700 million of unanticipated expenses were unavoidable. We will never know. But if creating a better understanding of alternative worldviews could have avoided a fraction of this expense, it would have had an enormously positive rate of return.
And what if we, as people of influence in corporate decision-making, ignore all of this? The world today is ever more dependent on developing and emerging economies as a source for raw material, manufacturing and as new markets. Any multinational corporation that ignores the reality of the growing centrality of positive relationships in developing countries does so at their own peril. Bridging the understanding gap is not a “nice to have” addition to involvement in developing countries, it is a corporate strategy for future success and avoiding conflict.
About the Author
Rick Molz is Professor of Management at the John Molson School of Business, Concordia University, Montreal. His research interest is in international business strategy, particularly in developing and transitional economies. He has published four books and more than twenty refereed journal articles. He has had visiting faculty positions at universities in Austria, Tunisia, Czech Republic, Germany, India and Poland.