Bruce Alan Johnson Associates

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You’d imagine that in my 30-year career in the international business arena, I’ve seen a lot of huge mistakes. And you’d be right. One of the biggest mistakes by far made by American businesses is in how they decide to pay foreign employees. I don’t have any vendetta against compensation consultants, but I have seen too many cases where they just don’t get this key point. Is it right to ‘match’ your pay scale to that of local companies? Generally (except in Europe, Australia, and New Zealand), no. People aren’t dumb. They know that an American or Canadian company is generally far better off financially than most local firms, and can therefore afford to pay at least a little more. Just from a competitive standpoint, it’s good practice to pay a little above your competition. During my ten years in South Africa, I always paid my staff 20% more than the going rate. And it worked. But match American pay scales? In Europe sure—maybe even higher. But in developing countries, never. Why? Well, let’s take American Apparel, a company which has done quite well in the USA but has been a total failure in China. The company entered China promising to pay sales staff the same high wages earned by their employees in America. High salaries as a marketing strategy worked in the States, reasoned American Apparel’s management, so surely this should be a good marketing ploy in China as well. It wasn’t. It was an unmitigated disaster. The company meant well, but the ‘sweatshop free’ message they thought they were broadcasting across China with this policy just did not work in a nation where the average salary is only one-thirtieth that earned by Americans. To Chinese consumers it just seemed stupid and silly, rather than honorable, for American Apparel to pay employees that much. As the Chinese reasoned, “They’re just passing those outrageous costs on to us!” (Separate from this error, the company made a second costly mistake: their ads in China were too overtly sexy for Chinese girls, who are more interested in a ‘cute’ look (think Hello Kitty) than an aggressively sexy one.) As we point out in our book Carry a Chicken in Your Lap—Or Whatever It Takes to Globalize Your Business, most American business practices do not translate into foreign cultures very well at all. Just as in high school and college, it pays to do your homework. Find out how the people in your new market think. Study their culture. And above all, respect it. Then you won’t make the mistakes—you’ll make friends and profits, instead.

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