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Doing business in Iceland: the insular and the uncommitted

Today’s guest post comes from journalist and writer Sigrún Davíðsdóttir, who is RÚV’s correspondent in London. Sigrún is widely agreed to be one of Iceland’s finest investigative reporters, and I am absolutely in awe of her ability to present some of the most complex scenarios in a language that a regular person can understand. She is a regular contributor to Spegillinn, in my opinion RÚV’s very best current affairs programme [on Radio 1], where her pieces are consistently outstanding. Sigrún writes the excellent blog Icelog, which focuses pretty much exclusively on the meltdown and subsequent fallout. I’m absolutely delighted that she agreed to contribute to the IWR.

Recently, I talked to a businessman who works for a company that is interested in the data storage sector. A priori, he couldn’t understand why this wasn’t already a thriving sector in Iceland – after all, the world, most notably companies like Google and Microsoft, is hungry for green-solution data storage, exactly what’s on offer in Iceland. Technical issues, that were a hindrance a few years ago have been solved. Why hasn’t this interest materialised in up-and-running Icelandic data storage centres?

Well, he found some of the answers when he himself went to Iceland in search of business opportunities. This man, familiar with business cultures in different parts of the world, be it the West or the East, had never run into problems like he encountered in Iceland.

Before going to Iceland he had been in touch with possible partners in Iceland and they had set up a programme that he has confirmed for his part. As it drew nearer to his trip he got more and more frustrated since none of the meetings seemed to be confirmed. In the end, the meetings were either confirmed the day before or on the hoof.

At first, he was quite taken in with the exceptional hospitality and accommodating attitude of the Icelanders. He was invited home to those he met with, met wives and children, friends and relatives. Nothing seemed to pose a problem to the Icelanders who would shrug shoulders and say ‘sure, we’ll do it, no problem.’

However, as the days in Iceland went on he became increasingly frustrated because nothing ever seemed to be finalised. Everything was in a flux, nothing could be pinned down and settled but ‘sure, we’ll do it, no problem’ was the ever-repeated mantra.

His summary of the whole experience was that two things did deeply trouble him: 1) the mixture of private and professional relationships – 2) the lack of or opacity of work/decision processes.

The Icelandic tendency of treating everyone as a friend is rather cute but it’s also deeply insular and indeed rather unprofessional. I’ve lived abroad long enough to notice this – and I can very well understand that foreigners find this plainly weird. To them, it’s also a waste of time. If you are invited to someone’s home for a meeting and the whole family is there and perhaps friends and relatives of the host, a lot of the time will go on non-business related conversation that, however pleasant and interesting, aren’t furthering the purpose – and yes, that can simply give the foreign businessman a sense that he is wasting his time.

The lack of traceable processes is much worse, though. Businesses in Northern and Western Europe and the US are characterised i.a. by formal work processes and decision process that many Icelanders find formal and time-consuming. I once interviewed one of the top bankers in a now failed Icelandic bank. He was explaining to me how quick they were at making decisions (what was seen as a key advantage in the Icelandic banks/businesses expanding abroad during the boom), and that this swiftness gave his bank a real edge. He then pointed at a set of black folders standing in a row: they contained the bank’s work processes ‘and we never look at them,’ he said proudly.

The businessman who had tried to do business in Iceland shuddered when I told him the story. For him it was deeply uncomfortable to think that not only were all processes absent, there also wasn’t any understanding of their benefits. Yes, of course they take time and of course it keeps you from racing on – but that can also be an advantage. And if something goes wrong, the process can help to track the source of the problem. But the businessman still didn’t understand why his possible Icelandic partners found it so difficult to make up their mind as to how they might want to engage with the foreign company seeking business opportunities in Iceland.

I offered an explanation. I once talked to an Icelander who lived abroad for some years (no, nothing to do with Icelandic banks or the Viking raiders). What he had learnt about his countrymen during his time abroad was that they suffered from a huge disability: Icelanders can’t commit themselves to any decision that’s final. It came out in small things, he said, like accepting an invitation – Icelanders wait to the last minute to accept or just don’t answer and then show up. (I couldn’t help but see my inability to decide on flights as this characteristic Icelandic inability to commit myself to travelling at a certain date in the future – I would prefer flights to be like busses). And the unwillingness to commit shows itself in major decisions. Now, it’s Icesave, he said – the offer from the Dutch and the British is on the table and Icelanders seem physically unable to face the facts and finalise a deal, forever thinking that something better might come up later.

When I told the foreign businessman his eyes lit up – his experience fell into place and fitted this description, from confirming meetings to the larger decisions regarding moving the business forward. Icelanders, he said, are excellent at doing things, solving problems but only as long as these are issues are only stepping-stones. However, they were unwilling to commit – and that has had an effect on him: he’s now less willing to commit his company to doing business in Iceland.

He wondered how this national trait had originated. I mused on the fact that fishermen might be like that, if you can’t fish today, tomorrow might offer better prospects. A fisherman doesn’t need to plan so much and is dependent on the weather that he can’t control. He thought this might be the case but pointed at the Japanese, also formed by the sea but still rather good at planning and committing. So if it has to do with the sea, Icelanders are like Nordic fishermen, not like Asian fishermen.

Lately, I’ve been reflecting on the conversation I had with the businessman. Some people have been pointing out to me that this unwillingness to commit is just the opposite of what the Icelandic boom-makers seemed to be about, such as quick decisions. But I’m not convinced. A big part of the boom was about evading finalities such as paying off loans or trying to evade accepting losses by making loan agreements for the chosen few and the bank employees themselves that they would never lose money on. Or, as if the huge commitments to only the chosen few had no consequences. Everything was kept in a constant flux, no clear processes, or processes completely sidelined. And that’s what we are stilling paying the price for.

If Icelanders want to attract foreigners to do business in Iceland they must try to meet them halfway in this respect and to commit. Otherwise, no serious investors will want to do business in Iceland – or it will attract those who seek opacity and thrive in the shadows. And those are not the ideal investors.

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  • Hrefna August 9, 2010, 11:44 am

    This rings many bells. An Icelandic living abroad that was in a position to bring a lot of honest, good business to Iceland has been trying and trying to get a finalized decision for _something_ ever since the economy melted, with almost no results.

    It was particularly galling to see this person go from being very optimistic about all the possible collaborations to becoming bitter and pessimistic about the whole thing. There was a lot of time spent on this, but there is little or nothing to show for it.

  • Stan Hirson August 9, 2010, 1:10 pm

    All too true. I confirm these observations from my ten years of doing, or trying to do, business with Icelanders. Perhaps this might be an explanation for the Icelanders’ inability to respond to e-mail. Somehow, putting words on paper, even e-paper, is to be avoided as a commitment. What they do not seem to realize is that it is often an insult and thus a barrier to doing trade at a distance.

  • Alexander E. August 9, 2010, 1:35 pm

    Coulnd’t DISAGREE more with the statements in the article. Although I’m not sure that what Sigrún said the businessman had said is what he really had thought and told her 🙂 – but even her interpolation of her own “inabilities” (like flight dates) over Icelanders might be OK for a personal blog but not acceptable for a professional journalist.
    It’s same if we say all Russians (or Bulgarians) speaks English cause Alexander E. speaks it. I also have no problems with flight dates whilst most of the Russian never used planes – so I have no idea about their ability.
    PS. I’m sure something seriously wrong with this “businessman” – as I did business in several countries with very different business cultures (except British). But first I want to check if I still can post to the blog.

  • andy kj August 9, 2010, 2:03 pm

    Commit? Maybe. Also Iceland is a small community (esp in business and location) unlike London, New York. If I want to do business there, with someone I do not know, their are formal / informal rules about how to do basis, which both parties are aware of and adhere to in some respect. In Iceland, you do business with people you have known / known of for a long time, so, hence the familiarity and lack of sustaining framework.

    Whole process thing, or lack there of…..it took the US and UK many years and innumerable financial cock ups to get to a position where everyone recognises, process and controls are a good thing. Iceland started that learning lesson (along with buying asstes of dubious quality at high prices (See Japanese overseas purchasing 1980 ‘s)

    I have been in enough meetings to get Icelandic professional staff / business men to commit, Icelandic style….sometimes committment is not written down!

    So overall, I might say Icelandic people do commit, in their own inimicable way!

  • kevin oconnor,waterford,ireland August 9, 2010, 2:33 pm

    Can’t really decide whether this is a good blog post or not, tell you what just leave it with me and I’ll get back to you sometime maybe.

  • Kris August 9, 2010, 3:24 pm

    It’s the tribal way. Maybe an anthropological perspective is in order! Maybe a study of Navajo (or take your pick) tribal customs will point the way. All business relationships are tribal (family) relationships. It’s not taught in business school. However, bribery seems to be an effective way to become a part of the family.
    Ask the Magma energy guy how to do it. He figured it out!

  • Rajan Parrikar August 9, 2010, 4:50 pm

    It is, of course, a very healthy practice to look inward and be self-critical of traits one perceives as undesirable within one’s own culture. But I would not be hasty in throwing the baby out with the bathwater, to utter a cliché. There is much in the prevailing Western (or Eastern) corporate culture that is distasteful, and I pray that Icelanders never adopt those elements of corporate culture. What your interlocutor perhaps failed to mention is that while “processes” sounds impersonal, in practice there is much that is rotten in corporate America and Britain, to say nothing of the stinking “processes” in China and India. Introspection, yes. Blind adoption, no.

  • Lissa August 9, 2010, 5:06 pm

    Fascinating. I agree that the opacity is the problem more than the informality. There are sectors of the US economy where informality and mixing work and private relationships are the norm.

    As I get older, I find processes more useful. They keep you moving when the flash of brilliance fails or a crisis hits. You have to know when to discard them or work outside of them (and that needs to be possible), but knowing the boundaries is useful when evaluating risk, among other things.

  • Gunnar D August 9, 2010, 6:03 pm

    I fully agree with this analyses!

  • Easy August 9, 2010, 7:34 pm

    I think somebody forgot to tell this man that there are no business men in Iceland. We have fishermen, farmers and few black suited pretenders(the sons and daughters of the fishermen and farmers).

  • Joerg August 9, 2010, 7:52 pm

    This post is reflecting many own experiences in private and business fields. It took me a while to see it as a general pattern – this obsession with last minute arrangements, inability to plan ahead and not responding to e-mails. In most cases, there is some solution in the end but the Icelanders’ commitment to non-commitment can be quite frustrating.

    There are definitely many advantages of having and following formal work processes. On the other hand, an overvaluation of those processes is prone to produce a lot of parasitic elements, who are only committed to the process itself and not to the result any more. I suppose, the challenge is to strike a balance between too much and too little informality.

  • Jessica August 9, 2010, 8:03 pm

    Sigrún hit the nail on the head. Iceland is definitely one of those “last minute” cultures where you don’t really know what the hell’s going on until it’s already happening (or happened). Sort of a “managed chaos” society…

  • James August 9, 2010, 11:49 pm

    There seem to be parallels with doing business in South Korea where personal relationships take priority, initial meetings are just personal not business, and it takes several meetings to reach any agreement.

  • sylvia hikins August 9, 2010, 11:55 pm

    The word I find most often used in my visits to Iceland is ‘maybe’. It’s the word I least want to hear.
    sylvia from viking wirral

  • R.L.Dogh August 10, 2010, 3:10 am

    I’ve done business both ways, the “Icelandic” and the “Japanese” (or we could say, the Italian and the German, the Aussie and Pommie, or the innovating and structuring). I prefer the Icelandic/Italian/Aussie/innovating, which is also the on-the-job Russian, where things just get done. Whatever the next step to do is what you do in the innovative.
    Something comes up, you adjust. The other way you structure, make notes, draw maps, set time-lines and schedules and then you run into gremlins (elves in Iceland) and what do you do? You have to start over, redraw, reschedule, more meetings, more agreements, more fooling around. The Icelandic way, an elf stops you at point b, you go to point d and carry on. And you make an agreement, you say ok and you count on the agreement. You don’t need formal papers, you don’t need positions drawn up, you put your next foot forward. The next after will be put forward where the terrain allows then. This makes sense to me, and works for me, and for Icelanders, Italians, Aussies and everyone else whose interest is to get the job done.
    I can see where it might have caused some trouble for Iceland’s bankers, since banks are more often stuffy and sticky on procedures. The Icelandic bankers, as I understand, didn’t have enough paperwork to satisfy everyone.
    @Kris The Magma guys in Iceland, like the British and Dutch ones who also set up structured agreements, got those through doing business with a woman who likes to make decisions, for everyone in Iceland, who, you might recall, finds them all too much like cats, not enough like sheep, it seems. In both cases her structured decisions seem to have run into oppositions from gremlins, or, rather, elves. Elves seem to prefer the step to step, or job to job, agree to start and see how it goes way of innovators and Icelanders (and Italians and Aussies and so on).

  • Bromley86 August 10, 2010, 1:32 pm

    >@Kris The Magma guys in Iceland . . . got those through doing business with a woman who likes to make decisions

    Is this the case? I thought the deal was done at the local government (IP) level? i.e:
    The representatives of the Independence Party and the Progressive Party on the Executive Committee voted in favor of the acquisition, while the representatives of the Social Democrats and the Left-Greens voted against it, according to Dagur B. Eggertsson, chairman of the Social Democrats in the Reykjavík City Council.
    http://www.icelandreview.com/icelandreview/search/news/Default.asp?ew_0_a_id=339984

  • Inside Bilderberg August 10, 2010, 3:02 pm

    Yes, that is pretty much how things work in Iceland, not sure it is a bad thing or not.

  • Bromley86 August 10, 2010, 6:56 pm

    >Yes, that is pretty much how things work in Iceland, not sure it is a bad thing or not.

    Well, clearly, a society that operates on personal relationships rather than formal legal processes isn’t the best option for an international banking centre 🙂 .

  • R.L.Dogh August 11, 2010, 12:38 am

    @Bromley86, It is not so much personal relationship as personal integrity, a situation where word is bond and so saying you will do something is “legal agreement”, or something more than, since for most who do business that way word is absolute, and, in so many instances “formal legal processes” write-ups are filled with fiddles.

  • Bromley86 August 11, 2010, 12:47 pm

    since for most who do business that way word is absolute

    Well, in the case of Icelandic banking, it might be possible to construct an argument that the people involved fully intended to honour all agreements and were just naive about exposure. However, it’s even easier to construct one that they were determined to transfer wealth from others to themselves by abusing relationships and control and by suborning the regulators.

    Either way, the effect was the same. And, sure it’s possible/probable that formal processes will be fiddled, but hopefully not to the extent that loans to purchase shares in companies (the same company as the one making the loan!) being secured only on the value of those shares, written off just prior to insolvency and not being overturned by the courts! Where is the word-bond of those that took those loans? How much is it worth?

  • R.L.Dogh August 13, 2010, 3:32 am

    @Bromley86
    I’ve had the banking business explained to me and can’t say I understand the half of it. The explanation was that the banks were at war, or England was at war against them, for invading England and being successful, the way WalMart does moving into communities in the U.S., if you know that, messing up the local business symbiosis, giving buyers better deals, but with the profits going out to, in WalMart’s case, Arkansas, in the USA. Out of England to Iceland in the Iceland banks case.
    There are games that businesses big enough to sell stock play to maintain their stock values. Selling blocks of stock by loaning money to buy them is one of the ways stock values are maintained, because it keeps the stock in the market, or appears to, so the company doesn’t have to buy it back off the market and show that it is doing that, which would look like weakness.
    Anyway, England won the war by bringing in government guns and some other maneuvering and managed to shoot the Icelandic banks down, even though they weren’t insolvent, according to what I was told, which is supposed to be why they are still going, where they are still going under new names, with only Iceland cut out and the new owners getting the profits.
    All of that is out of my league, but it is the explanation I was given for why loans just to buy stock (shares) were done (are done) and why those loans were (are) written off, because the borrower-buyers are not supposed to be in those cases doing anything, just holding to help out, prevent panic, provide a defense wall against hedge funds and such. It’s kind of like international intrigue, supposed to be played by an unwritten code of free-market rules between the players and governments are not supposed to step in to tilt the playing field. It’s like the umpires taking a side and throwing a game and so making it not a game. That’s how it was explained to me.
    If you can read The Rolling Stone magazine a guy named Matt Taibbi writes understandable explanations of the world of high finance. I don’t think he’s written about Iceland, though.

  • Bromley86 August 13, 2010, 9:35 pm

    I can safely say that either you got the wrong end of the stick or that the person who explained the banking situation to you knew absolutely nothing.

    Sure, we don’t know everything that happened and the motivations behind many of the actions, but we do know that two of the three Icelandic banks had actually closed their doors before the UK moved! Even the argument that the UK freezing order led to Kaupthing’s demise has been disproved by the Kaupthing High Court case – it turns out that Kaupthing was in serious trouble with the FSA before Icesave imploded.

    In fact, there’s a better argument that the UK didn’t impede the Icelandic banks enough. The interpretation of the EU/EEA rules that was in effect was that the Home country (Iceland) was responsible for regulation, whereas it’s since been argued that the UK could/should have impeded or even excluded the banks earlier.

    As to the banks still being going concerns, that was only possible by splitting the banks into separate entities, split by Icelandic assets/liabilities and foreign assets/liabilities. I’m not sure how much money the government pumped in in the end, but recapitalisation of the banks was one of the three reasons given for taking the IMF loan. So, again, your source is entirely wrong.

    Their moral compass is seriously iffy as well. If the banks had managed to scrape through (and if they weren’t zombie banks, which it turns out they were), then those people who took the loans would have sold their shares for a profit and kept that. Fair enough if they took on the risk, but as we’ve seen they didn’t. Unjustifiable behaviour in almost every society.

  • R.L.Dogh August 14, 2010, 5:34 am

    @Bromley86
    Here on Alda’s blog isn’t really a proper place to hash over the Icelandic bank thing, and I don’t, myself, know enough about the business anyway. My source was a banker who wanted the Icelandic banks to succeed in England, to force English banks to start paying interest to depositors again. His views were only of the English Icelandic banks, separate from the Icelandic Icelandic banks. He would agree with you that the Icelandic banks were in trouble before the freezing order (by which I assume you mean Gordon Brown’s order) which he said was a grab for the spoils. The banks had been under attack in the war for a couple of years and were killed before that. He does take the side of the Icelandic banks and bankers, who he saw as white knights riding against the English bank dragons.
    If you know nothing about American football and can imagine listening while I explain the strategy of the game and how exciting it is, you can imagine where I was listening to him explain free-market banking strategy and maneuvering.

    Thanks, Alda, for letting us talk politics in a corner at your party. We won’t anymore. We’ll be properly sociable from now on.

  • alda August 14, 2010, 9:35 am

    R.L. Dough — feel free to discuss anything you like here, as long as you do it in a respectful and polite manner. I don’t mind. 🙂

  • Inside Bilderberg August 14, 2010, 8:47 pm

    “Well, clearly, a society that operates on personal relationships rather than formal legal processes isn’t the best option for an international banking centre”

    I always thought it was a insane and ridiculous idea…but I also think fractional banking is a scheme to make the international bankers and their families even wealthier. Central banks all over the world and the Federal Reserve System in US need to be exposed and their real purpose known…but people are though actually waking up to how rotten this system is…the stench can not been hidden any longer.

    “Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take this power away from them, and all the great fortunes disappear, and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create money and control credit.” (Attributed to Sir Josiah Stamp Director, Bank of England 1928-1941 (reputed to be the 2nd richest man in Britain at the time)

    As Andrew Jackson noted of the Second Bank of the United States, the predecessor to the Fed which came back into being 80 years after:

    “Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.”

    “The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the Banks.” ~ Lord Acton

    The People vs The Banks is indeed a fight that can not be put on hold any longer…our children and grandchildren deserve more of us than that.

  • Bromley86 August 14, 2010, 9:44 pm

    Looks like your friend has a certain philosophy/world view that heavily influences his interpreation of the facts.

    In all my conversations over the past 2 years, including those with ultra-Icelandic nationalist pro-bank types like Fisy, I don’t think anyone has tried to make the case that the banks were penalised by the UK “establishment” prior to the collapse. As I said, if anything people have been saying, rightly or wrongly, that the UK FSA dropped the ball and should have taken a stricter stance sooner.

    The Dutch did try to limit the penetration into their markets with gentlemen’s agreements. Guess how well those worked 🙂 .

    The French were actively obstructing the Icelandic banks from opening up in France, but that was just before the collapse. Had they not crashed, then the French would have had to cave in (due to EU/EEA rules).

  • R.L.Dogh August 16, 2010, 1:49 am

    Bromley86,
    I’ll try to update myself and get more information on the thing of banking, or finance, being played like a game in the “free-market league” and then try to get back to you, maybe here, in a later post if a compatible topic comes up, if Alda doesn’t mind. I’ll try to get more specifics on the Iceland-England game, what the plays were and where what happened, too. What I recall is that the games are played with AIs and PIs, which are “Average Investors” and “Professional Investors”, and are moved using “Media” by the players, who are “Attackers” and “Victims”. Most attackers are hedge-funds, but may be anyone who wants to drive a victim company’s value down. The “legitimate” reason to drive value down is to make a profit by doing so, usually by short-selling stock not owned, against a margin, a percentage of value, so more can be sold. The profit is made if the value can be driven down and the sold stock re-bought for less (to give back to the owner), so the difference can be kept. The attacker uses media, which is any communication, to try to undermine AI confidence in the victim and convince PIs they, the attackers, can pull off the drive-down play, so that both will sell stock at whatever the current price, and make more decide they should sell, too, before it gets worse. The victim is meanwhile using media to counter the attack, to bolster AI and PI confidence, so the stock won’t go down. Since all sold stock has to be bought, if lots of selling is induced and buyers are put off by a good media attack the company will have to buy the excess openly, which buying can then be used by the attacker in a next phase media-blitz to claim the company is in serious difficulty with no one having confidence in it. If this works it can start a “cascade”, where the stock falls precipitously and goes very low. Then the attackers can buy back to cover their short-sells and take their profits. With the success of a play the media-blitz stops and the stock usually will climb back up. Good attackers, when they know a company they beat down is solid (not what they said in their blitz) will then buy extra shares, to make more profit as the stock recovers. The victim, the defender, has to counter the blitz and try to make it unconvincing. They usually counter to the PIs, because they will lead the AIs back, or stop them jumping ship.
    Loaning to counter-parties to buy, or arranging loans, or standing collateral for the loans, along with giving no-loss guarantees is one of the techniques victims use to not appear in the market to be buying back stock when attackers are forcing them to, to not add fuel to the flames. I remember that in the Icelandic banks in England case the English attackers thought it would be easy to push the Icelandic bank victims into having to openly start buying their own stock, because Iceland had a very small pool of potential stock-buyers. The attackers didn’t figure they would have much trouble scaring enough English investors into selling. The Icelandic banks, however, had bigger bank allies (I remember Deutche Bank one) and they managed to float almost all their stock, getting buyers buying it in the market (lots of them Icelanders buying with loans given them to buy, on terms they couldn’t lose for, to protect them. The attackers lost on the play and started losing money for having to cover their margins, and blamed their losing on Iceland being a closed society monolith of inter-traders who banded together to artificially elevate their stock values and keep them from going down when they should have (when the English attackers wanted them to, and so cheated to beat the English attackers. All sour grapes according to my guy, in whose opinion the Icelandic banks’ counter-playing was brilliant maneuvering. In his opinion, with that loss the English banks should have followed proper free-market rules and adjusted to free-market compete with the Icelanders, raising their interest rates on deposits and treating their customers like people and all he said they had stopped doing when they stopped competing with each other to screw the depositors. Instead, he said, they went to their government and said the Icelandic banks were ruining everything and needed to be stopped.
    I’ll try to find out more details and make sure I remember right.