Making Long Distance Work: The Relationship between Nordic and East Asian Countries
This piece was co-authored by Claire Spangler and Andrew Fallone
Just as they can between people, relationships between geographic regions can flourish across incredible distances. Nordic and East Asian countries encourage long-term relationships in their economics, cultures, and regional identities. The Nordic countries, which includes Norway, Sweden, Finland, and Iceland, have strong economic interests in the Asian market, both in terms of imports and exports. East Asian nations pursue their disparate economic goals by increasing foreign investment in the region through deeper economic integration. Both Nordic and East Asian nations utilize the strengths of one another’s economies to supplement the strengths of their own. It is possible to transcend the vastly different business cultures and foster greater transregional bonds with astute attention to differences in communication norms. Collaboration between the Norden and East Asia centers on the economic benefits that both regions reap from their independent regional integration, overcoming cultural differences to obtain greater economic importance on the world stage through transregional cooperation.
Managing the Distance: Cooperation and Clashes between Norden and East Asian Countries
The differences in Nordic and East Asian communication norms illustrate obstacles created by distinctions in the regions’ cultures. Actions that may be commonplace in Nordic countries may offend in East Asia, and vice versa. To fully understand the business relations between the two regions, it is necessary to break down the dimensions of the two cultures, following Hofstede’s structure.
Hofstede’s structure makes it is possible to understand the differences in the manner that Nordic and East Asian countries conduct business, and the challenges that cause them to adapt to the other’s business styles. Hofstede identifies five essential components to culture: power distance, individualism and collectivism, masculinity and femininity, long or short-term orientation, and uncertainty avoidance. Power distance is the extent at which hierarchies play into a culture. Nordic countries have a relatively low power distance, meaning that low level employees frequently collaborate with high-ranking members of their organization. This also plays into the relative collectivism of Nordic countries. In contrast, East Asian cultures have very high power distances. High power distances play into business dynamics in two ways. Firstly, with high power distances there is a larger emphasis on the individual, and relatively low emphasis on teamwork. When working in the Norden, the differences between individual and collective work hinders the communications between the two regions. East Asian business people expect one contact in the Norden, but may end up working with multiple contacts. Second, with individuals pursuing their own projects, they risk more. East Asian cultures have a heavy emphasis on ‘Face.’ The concept of ‘face’ can be defined as a person’s reputation. A person who ‘loses face’ risks losing their honor, which can further affect their families. Thus, high power distances allow a buffer zone that is not affected by others’ mistakes. In business negotiations, the danger of losing face often comes in the form of East Asian business people forgoing additional explanation when unclear on a subject. Nordic business people’s failure to realize this component of communication contributes to the failure in negotiations. Thus, business failures result from disruptions in communication norms. This can be counteracted by deliberately slow-paced negotiations between teams on both end of the relationship, allowing both sides enough time to process information in a cohesive manner. However, the two cultures have additional challenges regarding their negotiation styles.
The negotiations styles of Nordic and East Asian countries are dependent on the strength of the relationship between the collaborating partners. Negotiation styles can fall into either the category of masculine or feminine, as prescribed by Hofstede. Nordic cultures lay firmly in the more feminine side where negotiations and compromises are the norm. East Asia differs in that is primarily a masculine culture, where relations are assertive and focused on material success. Additionally, strong personal relationships are a prerequisite for business relationships. The Chinese name for such relationships is Guanxi. Guanxi are relationships that one relies on for survival. These relationships are reciprocal in nature, and thus ensures that the other party responds in kind, as they will ask for favors in the future. Thus, East Asian business people will often act ambiguously not only to save face, but also to ensure the continuation of the relationship; losing face would put their necessary relationships at risk as the other party may not want to depend on someone who has lost prestige. In this manner, East Asian cultures straddle the divide between Masculine and Feminine culture types. It is especially important for Nordic countries to understand differences in negotiation styles because they tend to have a short-term orientation. Business relationships between the two countries must have long-term goals and a history of cooperation for deals to be successful.
Long and short-term orientations similarly contrast between Norden and East Asian countries. Nordic culture is short-term orientated and is only judged by recent or present events. Relative collectivism influences this cultural difference, as there is less on the line for business people in a collective culture. East Asian cultures differ in this as they have a long-term orientation. This orientation is affected both by their individualism and need for strong relationships. Their relative individualism causes more risk in decisions, and thus, decisions take longer to deliberate on. Additionally, due to the emphasis on strong personal relations in East Asian cultures, it is necessary to have a long-term orientation. Relationships take time to develop, yet ultimately are valuable in their reciprocity. As aforementioned, to combat these differences, business deals need to be negotiated over an extended time period to ensure success.
The final aspect of Hofstede’s cultural dimensions is uncertainty avoidance. Uncertainty avoidance is the extent to which members of a culture will feel threatened by and avoid the unknown. Both Nordic cultures and East Asian cultures have very low uncertainty avoidance, meaning that they feel secure in the future and in new circumstances. This similarity between the cultures explains the great economic cooperation between the regions, regardless of cultural differences and misunderstandings. Successfully navigating the cultural differences between the Norden and East Asia requires careful attention to communication norms.
While Nordic and East Asian motivations for fostering regionalism diverge, they have similarly efficacious implications. Regionalism is the collaboration of nations on both regionally and internationally pertinent issues using institutional frameworks to increase their total influence. Three waves of regionalism are often discussed, the first stage concerns the infancy of European regionalism and import-substitution integration. The second phase of regionalism involves deeper economic integration in Europe with the Common European Market Act of 1985 and the emergence of Regional Trade Agreements throughout the world. The third and final phase of regionalism includes the erosion of the control of international monetary institutions, with nations such as those of East Asia preferring bilateral and minilateral trade agreements. Regionalism developed at different times in each region, following the Second World War in Nordic nations and the fall of the Soviet Union in East Asian nations. Thus, regionalism manifested in different ways in each region due to different sovereign priorities and different experiences with supranational organizations. Through an examination of the development of regionalism in each region, avenues for future collaboration between the Norden and East Asia become clear.
Nordic nations have a long history of collaboration, yet have found the most success in aligning regional policy priorities and contributing to regional defense cohesion. All the countries of the Norden region (excluding Finland) have languages that are so similar to one another that were they not tied to state identities, they may be considered to be regional dialects of one another. The region has developed its own set of policy priorities, including rule of law, environmental initiatives, and regional solidarity. These priorities encouraged the formation of regional supranational organizations to help coordinate action on these priorities. Another factor contributing to the success of regional cooperation is the similarly small populations within the Norden. When compounded with similarly post-industrial service oriented economies in each Nordic nation and a common Lutheran cultural foundation, regionalism between the Nordic nations is easily understandable. Initially instigated by the threats of crowding out by the Soviet Union and the European Union, Nordic nations’ collaboration allows them to utilize their varied economies to enhance their global competitiveness and communally develop in order to maintain their international relevance. Although efforts to establish a single Nordic market in the 1950s failed, as did the Nordic Economic Community (NORDEK) in the 1970s, some of the ambitious goals outlined in NORDEK have been achieved. Such examples include the Nordic Council of Ministers, the Nordic Industrial Fund, and the Nordic Investment Bank. The Nordic Council is a pillar of collaboration in the Norden, allowing for intergovernmental cooperation while drawing its legitimacy from resolutions passed by each individual nation, demonstrating each Nordic nation’s recognition of the benefits of regionalism. Originating from the Treaty on Nordic Cooperation in 1962, the Nordic Council of Ministers was established in 1971 in order to create policies that would achieve regional goals and send those policies to each member nation’s respective government for implementation. The goal of the council is to allow for Nordic synergy when responding to local and international issues. The Nordic Council of Ministers also allows for cohesion in economic priorities, focusing on regional economic goals while simultaneously focusing on regional political cooperation with the European Union. One of the strengths of the Nordic Council of Ministers its absence of supranational authority, allowing for each member state to interpret its recommendations. The different relationships with the European Union that each of the member nations maintains exemplifies the Nordic Council’s lenient structure, keeping its members united despite their differences.
Another key component of Nordic regional collaboration is in the area of defense. Although individually small, the Nordic countries have a combined GDP the size of Russia or India and a defense budget larger than those of Turkey or Spain. Three collaborative defense institutions (NORDAC, NORDCAPS, and NORDSUP) combined into the Nordic Defense Cooperation (NORDEFCO) in 2009, with a decentralized structure wherein each nation’s defense ministers meet twice a year to create comprehensive solutions to regional defense challenges. One of the largest achievements of NORDEFCO is the near daily communal military exercises in the North Calotte region of Finland, Norway, and Sweden, allowing for exercises that cross borders freely and develop capabilities cohesively. The regional cooperation in policy, economic, and defense matters across the Norden region has allowed countries with small populations and economies to maintain their power in international affairs while coordinating the achievement of internal regional policy goals.
Regionalism in East Asia has similar intentions to regionalism in the Norden, yet is rooted in different factors and manifests itself through different frameworks. Cooperation emerged from the Asia-Pacific regionalism of the 1960s, tied to American reconstruction efforts in East Asia, with East Asian nations relying heavily on American investment. This led to broad East Asian participation in multilateral trade agreements such as the General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO), with every founding member of the Association of Southeast Asian Nations (ASEAN) becoming GATT members. Even as local regionalism began to develop, China joined the WTO in 2001 and was followed by Taiwan in 2002. After the export-economy based boom of the 1980s in Asia, an Asian ‘trade triangle’ emerged by the mid-90s, wherein Chinese and Japanese investment enabled other East Asian nations to expand their manufacturing potentials and export goods to Western markets. This fostered greater transregional cooperation in East Asia, with China becoming a full dialogue partner in ASEAN in 1996. In 1997, the ASEAN Plus Three summit in Manila took a step towards greater regional integration, with Asian leaders expressing their intentions to continue “strengthening and deepening East Asian cooperation at various levels and in various areas, including energy, transport, and information and communications technology” following their distaste with the response of international financial institutions to the economic shocks of the year. In December of that year, ASEAN Plus Three nations decided to combat the financial crisis at the time after finding international institutions’ support inadequate, outlining plans to create the Chiang Mia Initiative that supplanted to role of the IMF in the region by enabling currency swaps between member nations’ central banks. Despite these actions, ASEAN has been unable to promote economic integration by eliminating trade barriers and tariffs. Although lacking any formalized institutional framework, the regionalism present in East Asia is primarily market driven. Regionalism’s economic impacts vary widely based on the different regime structures of East Asian nations, ranging from democratic states such as Japan and South Korea to authoritarian states such as China.
In the absence of an institutional framework, East Asian nations find the economic success they seek principally through international and regional trade agreements, such as the Japan-Singapore Economic Partnership Agreement (JSEPA) of 2002. The powerhouses of the trade agreements promoting East Asian regionalism are the Japanese and Chinese economies, with the most prevalent trade agreement transition from bilateral Preferential Trade Agreements (PTAs) to minilateral Free Trade Agreements (FTAs), promoting deeper economic integration by allowing for the widespread trade liberalization that multilateral trade agreements had failed to provide. Such trans-regionalism manifests as bilateral FTAs between the ten ASEAN nations and nations such as China (CAFTA), Japan (JAFTA), and Korea (KAFTA). The China – ASEAN FTA has operated as a model from which further minilateral agreements can be based. Another component of regionalism in East Asia is the security community it fosters, with the ASEAN charter itself highlighting its intent to create a cohesive security, economic, and socio-cultural community. The security community is key to economic goals by providing greater security through the prevention of war, with the declaration in the Bali Concord II stating that ASEAN “members shall rely exclusively on peaceful processes in the settlement of intra-regional differences and regard their security as fundamental linked to one another and bound by geographic location, common vision and objectives,” thus encouraging greater stability that will encourage investment. Even the China – ASEAN FTA is likely related to security concerns, with China looking to secure its influence in the region as a counterbalance to American interests. The largest factor promoting East Asian regionalism is the union of CAFTA, JAFTA, and KAFTA, for two reasons. First, the three agreements compound to wed the economies of China, Japan, Korea, and the ten ASEAN nations together, thus uniting more than 2 billion people into a free trade agreement, allowing for an incredible amount of regional growth. Second, the vast united economies’ potential for growth is likely to attract the attention of investors, further encouraging regional prosperity. Thus, the economic priorities of East Asian nations overlap to allow for transregional growth through regional trade and international investment, even without a formal framework.
While the origins and manifestations of the Norden and East Asian regionalism differ, certain factors make collaboration between the two regions predictable and mutually beneficial. Regionalism in Nordic countries is based primarily on their similar characteristics, such as language, population, economy, and policy priorities. In contrast, East Asian regionalism is influenced primarily by external market factors such as the confluence of globalizing economies. Despite the differences in the levels of formal institutions framing regionalism in the Norden and East Asia, uniting both regions has allowed them to combine the disparate strengths of their members, thus making cross regional coordination exponentially beneficial for each member. In East Asia, instead of relying upon natural resources to act as the catalyst for Foreign Direct Investment, regional economic collaboration shows the potential for widespread growth, which encourages FDI. The globalized multinational corporations of the region utilize the regional economic integration to procure the resources they need, incur lower costs, and benefit from larger commercial markets. This makes them a great target for investment for external nations and companies, and given the high levels of economic coordination in Nordic nations, there is great potential for cross regional cooperation to the benefit of both. European direct investment in ASEAN nations increased from 24 percent to 40 percent from 1995 to 2001, and the greater transregional cooperation in East Asia has only encouraged greater FDI since then. This economic cooperation also works in the inverse, with China entering into Preferential Trade Agreement talks with Iceland in 2006. Despite China’s relatively small economic gains from such an agreement, it demonstrates the Chinese commitment to economic diplomacy and cross regional cooperation. While Iceland is not an EU member, it is a member of the Nordic Council of Ministers, creating the opportunity for greater cross regional cooperation in the future. Beyond economic cooperation, East Asian nations such as China can take advantage of lessons in regional financial liberalization from the Norden. China shares many key similarities to Nordic nations’ pre-liberalization economic systems. Scholars from the MIT journal Asian Economic Papers note that both share “a bank-dominated financial system, strong credit controls, exchange (capital account) controls, [and] lack of risk management experience…” with the ‘boom-bust’ financial liberalizations of Finland, Norway, and Sweden providing a cautionary example for Chinese and East Asian economic liberalization. Furthermore, Nordic nations can also use pan-regionalism to promote their regional objectives. Following the 2008 financial crisis, Denmark, Finland, Norway and Sweden used their role in guiding the Asian Development Bank’s financial disbursements to promote “ecologically, socially and economically sustainable” economic development. The utilization of regionalism to promote economic growth in East Asia provides an opportunity for the institutionally regionalized Nordic nations and East Asian nations alike to benefit from increased trade, investment, and policy alignment between the two regions.
Business: West to East
While the European Union is the Nordic countries strongest trading partner, East Asia makes up for a large part of the Nordic economy. Two notable connections between the regions include the business relationships between Sweden and China, and Norway and Japan. In 2016 Swedish exports to China amounted to the equivalent of 5.5 billion US dollars. This number, on average, increases every year by 1.7%, and has since China’s acceptance into the World Trade Organization. Much of this trade is of Swedish machinery and equipment, in addition to medical products. Norway and Japan, on the other hand, trade relatively less, and exports to Japan only account for 1.4% of Norway’s economy. However, Japan is Norway’s second largest Asian trading partner, following China, and is notable because of its reputedly difficult market to infiltrate. Norway has been relatively successful in their trading ties with Japan because of the 112 years of diplomatic ties between the two counties. Additionally, Norway spent significant time sending business counsels and cultural experts to aid trade relations. These efforts resulted in 1.6 billion US dollars in exports to Japan, primarily in fish and petroleum products. Indeed, the exportation of fish to Norway is possibly the most interesting connection between the two counties. Norway is the largest provider of salmon for Japan’s world famous sushi. In 1985, the Norwegian Export Council began marketing Norwegian salmon to Japanese markets, a difficult endeavor considering that salmon was not traditionally used in sushi. Norwegian salmon, however, is larger and lends itself better to the art than pacific salmon. The endeavor achieved amazing success, and in 2016 Norway exported 34 tons of salmon to Japan, perfecting the exportation to take only 35 hours from Norwegian fjord to Japanese market. This case study exemplifies how, with appropriate effort and over a significant time period, Norden countries can overcome cultural differences to build flourishing trade relationships with East Asia.
Business: East to West
Economic cooperation between Nordic and East Asian countries is also in the best interest of East Asian countries. Not only can they receive investment and desired consumer products, but they can also invest in Nordic companies and technologies. Norway, Denmark, and Finland occupy the top three spots on the Global Prosperity Index as of 2010, with Sweden in 6th place, distinguishing Nordic economies as important partners for any global economy. The economic competition between East Asia and the Norden has overcome cultural differences such as Nordic nations having relatively low context cultures compared with high context East Asian cultures. Yulia Lamasheva explains in the Niigata University Journal of Economics that post-modern values such as freedom of expression and interpersonal trust in both regions have promoted cross-cultural communication and trans-border economic cooperation. These factors allow complementary economies such as Norway and China to collaborate. China is the largest ship builder in the world, and Norway has a well-established maritime sector that develops new designs and technologies. Furthermore, China is the largest consumer market in the world, and Chinese consumers have a taste for Norwegian products such as purified water. East Asian investment in the Norden is also mutually beneficial, with China investing approximately 56 billion USD in Europe in 2016 and Norway relying on FDI for 25 percent of value creation in the nation. Partnership between Chinese and Norwegian firms has also been meaningful for both regions. In the late 2000s, the partnership between Nordic telecommunications firm Telia and the Chinese technology giant Huawei led to the launch of the world’s first 4G and 4G-5G networks in Norway. Cooperation on renewable energy also allows for the realization of Nordic policy priorities and the utilization of technological innovations from the Norden by East Asian nations. The Norwegian firm Cambi turns sewage into clean energy in increasing numbers of Chinese cities, and Norwegian firm REC solar is helping to create floating solar farms in Singapore to combat growing power needs and limited land. Also high levels of tourism to the Norden from Asia have become key to supporting Nordic tourism industries, leading to the creation of the Scandinavian Tourist Board in Asia. Each Nordic country’s distinct branding increases tourism to each individually. Other ideas, such as the use of Vikings cartoons in advertising, and promoting cultural concepts such as Hygge, or coziness, have proven successful in promoting East Asian tourism to the Norden. The economic goals of both regions can be simultaneously achieved through the regions’ ever deepening economic cooperation.
The Norden and East Asia both benefit from their collaboration, despite the obstacles that must be overcome to make it possible. Cultural differences can be navigated in the pursuit of common goals. Regional institutions’ organizational structures differ, but transregional initiatives offer positive outcomes for both regions. East Asian nations can learn important lessons from financial liberalizations across the Nordic nations of decades prior. Nordic nations can both invest in and accrue investment from East Asian nations. Complementary economies allow both regions to benefit from the strengths of the other. With careful attention to detail, both the Norden and East Asia can continue to prosper through their relationship in the future.