How different countries view business failure
In my last blog I wrote about how business failure affects the business owners and entrepreneurs who suffer from it. The one before that looked at the way VCs consider previous business failure when making startup investments. In this blog I want to look at how different countries (or cultures) view business failure.
Most of us have ideas on this subject. For example, it is commonly believed that in the USA there is a much more relaxed attitude towards business failure than in the UK. Also, we believe that the Japanese consider business failure as a massive loss of face. Further, that the Germans thoroughly disapprove of it. However, hard research does not necessarily support these views.
Commonly held views
I will look at the commonly held views first and then at some research findings. I acknowledge my indebtedness to Sue Bryant’s article How different cultures deal with failure for this section of my blog.
The following are some commonly held views about individual countries’ attitude towards business failure:
The USA, as we have seen, has a high tolerance to business failure. Entrepreneurship is widely admired and business failure is considered to be a useful stepping stone to success.
UK attitudes towards business failure are mainly negative. Debt is no longer a crime, but it was once. It was not too long ago that there were debtors prisons in England. However, in the entrepreneurial 21st century we like to think that attitudes have changed. But, if they have, it is only at the margins and, perhaps, only in the world of high-tech startups.
In Germany a series of rules and laws hold the social fabric together. Long-term security is sought after and prized. People view failure as a weakness and the result of inefficiency, not bad luck. Consequently, great effort is taken to minimise its likelihood.
Japan & India
In Japan a business failure can be fatal to a person’s professional reputation. An executive involved in a failed company may struggle to find another job. Moreover, the chief executive of a failed enterprise needs to apologise for letting people down. The resultant loss of face from business failure is likely to be career-ending.
India is fast emerging as a country of opportunists and entrepreneurs. Historically, India has considered failure as a disaster that could even affect an individual’s family name and marriage prospects. But its technological innovation, the availability of venture capital and a Silicon Valley mentality, has created a boom that has dramatically changed attitudes.
In Australia attitudes are more conservative than one realises. This is despite the fact that the outside world views it as a bold and daring country. On the contrary, Australians have an almost British-like aversion to failure, which negatively affects entrepreneurship.
Islamic cultures generally are not tolerant of failure. There’s is a culture where maintaining harmony and face are crucial. Also, a strict hierarchy, risk aversion and fatalism are commonplace. Consequently, there is little room for experimentation and failure.
It seems the the more conservative the culture, the less tolerance for failure. Saudi Arabia, for example, is known for its intolerance and lack of entrepreneurial spirit.
But there is an exception. Multicultural United Arab Emirates is a society increasingly open to encouraging entrepreneurs and there is, consequentially, a more liberal attitude towards failure.
Some research findings
The idea that cultural factors per se influence attitudes towards failure and resultant rates of entrepreneurship has generated a number of research papers. Most of them admit to having produced what they call “mixed results.”
From my reading of some of these papers, “mixed results” means that researchers find it difficult to come up with any hard and fast conclusions. In particular, they are indecisive on how general cultural attitudes in different countries influence how their citizens view business failure.
Failure and economic growth
Interestingly, some research suggests that where there is rapid economic growth there is a more tolerant attitude towards failure. Interestingly, cultural values alone do not form opinions.
Also, moral views do not necessarily affect attitudes. More important can be such things as legal reforms associated with such things as insolvency. Where legal reforms have lead to a more lenient outcome for insolvency, attitudes towards failure are more tolerant.
The following are some quotes from research papers, which give a flavour of their findings: :
- “We should be mindful of the fact that the inter-country differences observed here are very small…”
- “It may well be that we have failed to capture important nuances in attitudes to business failure. For instance, recent research has suggested that people make sharp distinctions between ‘honest’ and ‘corrupt’ business failures.”
- “We need to be aware of the limitations of explaining national differences in terms of individual attitudes and values. Even if value differences are found to systematically predict differences in entrepreneurship between countries, this is still far from a satisfactory explanation either sociologically or economically. To say: ‘Americans take risks because that’s the sort of people Americans are’ leaves us no wiser about the nature of values and the causes of value differences.”
Perhaps then academic research does little to either reinforce or diminish popular views on this subject. Despite research, our commonly held views are still based on anecdotal evidence.
Loss of money: loss of face
Finally, what is it about business failure that attracts negative reactions? There are two obvious reasons.
The first is emotional or psychological damage. That is the embarrassment, shame, loss of face (call it what you will) that the business owners of failed businesses experience. I believe the countries who feel this most acutely have the most negative attitudes towards failure. The shame felt rubs off on the community at large. Thus moral condemnation appears appropriate.
Loss of money
The second issue is loss of money. This affects not only the business owner and their families, but also the unpaid creditors of the failed business. The number of people negatively affected is greater and their loss is real, measurable. It is also, perhaps, longer lasting than the psychological issues previously mentioned.
Financial loss has nothing to do with moral values as such. It is negative because it hurts. Almost everyone who is financially affected by business failure dislikes it.
Both the psychological and financial issues are important in influencing how people feel about failure. However, it is the loss of money that in my opinion has the greater impact on attitudes because it directly affects a greater number of people and in a place it really hurts: their pockets!
Neither the business owner who has gone bankrupt, nor the unsecured creditor who has sustained a business-threatening loss, is likely to accept that a business failure is a positive learning experience. And this is true whatever county they live in.
Also you could refer to FAQ 3.37: https://www.freeforumofideas.com/faq/37-what-is-the-survival-rate-of-small-businesses/
For business failure rates in the US, please refer to: https://www.bls.gov/