22 Jan 2007  Working Papers

“Don’ts" and "Do’s”: Insights from Experience in Mitigating Risks of Western Investors in Post-Communist Countries

Executive Summary — Cultural and other misunderstandings between westerners and locals in post-communist countries are very costly, and western investors grossly underestimate how damaging ineffective interaction really is. This article shows that such interaction constitutes a major stumbling block to effective risk management and stands in the way of the enterprise fully taking advantage of opportunities for profit in these product-hungry, fast-expanding, and dynamic economies. Ultimately, effective communication between westerners and locals is the necessary condition for the success of western investments in transition countries. Key concepts include:

  • On the whole, and with several notable exceptions, investors and business executives from mature western economies pay far too little attention to the quality of their interaction with their local counterparts.
  • Misconceptions about the "realities" of dealing with locals and the practices which such misconceptions lead to can engender vicious circles of misunderstandings, resentments, and lack of trust.
  • It is well within the power of western investors and executives to generate a better relationship with locals.
  • The westerners' best guides for meeting the challenge of effective interaction with locals across differences in business practices, concerns, priorities, and values are the same basic principles and managerial tools which they would apply within mature economies.

 

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