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American Tendency Towards “Home Bias” In Business

One of the general factors that one sees in a rather large segment of the American business culture is what I like to call “home bias”. “Home bias” the tendency is to see one’s own country/culture as the best and the only one worth engaging with. This tendency seems to be especially pronounced in the U.S., in which it can sometimes seem as if America is the only country in the world. For example, we have the World Series in baseball, despite the fact that only American teams are eligible (with the exception of a single Canadian team). The Super Bowl winners refer to themselves as “world champions”, although only American teams compete. In financial markets, American retail investors put most of their money into American stocks, despite the fact that there are well-developed stock markets in London, Tokyo, and Frankfurt. And while the proportion of Americans with passports has grown in recent decades (roughly 40% according to one BBC article from 2018), the percentage is far higher for Europeans. Finally, indications are that only 20% of Americans converse in a second language compared to roughly 50% of the world population. And the vast majority of Americans who are able to converse in a second language are first- and second-generation immigrants. The estimated percentage of native-born Americans who are able to converse in a second language is only around 6.5%.

While some see the relative provincialism of Americans as a failing, it is really just a natural product of geography. America is a large place. One can fly for several hours in one direction and still be in America. The large distances within the U.S. also mean that traveling abroad can be more expensive for Americans than many others. These large distances also impact why most Americans only speak English. In addition to being able to do so much in the United States (travel, business, etc.), English is a global language of commerce. Roughly 1.3 billion people have at least some knowledge of English (roughly 17% of the world’s population), including most international tourist destinations. In other words, the payoff to putting in the effort to learn a foreign language to a bi-lingual level is relatively low for an American, as compared to someone whose native language has relatively few speakers. Due to these multiple factors, the truth is that most Americans have, at best, limited contact and knowledge of foreign cultures. While it is difficult to tell how many American have ever lived abroad, the U.S. State Department estimated that only 10 million Americans (3% of U.S. population) were living abroad in 2020.

What this U.S./English-centric existence has spawned is a culture that is uncomfortable doing business outside of its borders. I once worked for a bank that didn’t want to lend to a certain customer because the bulk of his accounts receivable came from Canada. While it is natural for start-up businesses to focus on their nearest market (in this case, the U.S.), most never venture abroad. This lack of familiarity has created the perception that overseas is ‘risky’. Also, the a large enough market that most businesses can get all the business that they can handle here. And where financial investments are concerned, the U.S. stock market has returned enough to investors to be the backbone of private sector retirement plans for at least a generation and a half. When taken together, for tens of millions of Americans, there really isn’t a need or reason go outside of the U.S. for travel, for business, or for investing.

In summary, the “home bias” for Americans is a function of a culture that has been formed from American geography and historical experience. The large domestic market for products and vast distances within U.S. territory, means that the need to engage with the world outside of the United States just isn’t there. While increasing numbers of Americans are going abroad on vacation, this isn’t likely to change this “home bias” anytime soon. Traveling to a foreign country as a tourist can be informative, but it isn’t going to truly get one comfortable with living or doing business there. The results of “home bias” can be seen even at the highest reaches of our government in which understanding of Arab and Afghan culture were clearly lacking 20 years ago, and it’s not clear that there is a significant amount cultural understanding of our current rivals of Russia and China.

Going forward, the significant “home bias” of Americans can present some niche opportunities for smaller companies willing to try and do business abroad. Finding a niche product to import that hasn’t been discovered yet by the American market can give you first mover advantage and can be profitable. For example, Nutella was very popular in Europe (and very popular among American exchange students and expats) in the late 1990’s before it ever made an appearance in the United States. In order find these products however, you have to be willing to step out and overcome the natural instinct to stay with what is familiar. While of course not every product will be a hit like Nutella, if you don’t venture abroad, you won’t know what opportunities that you may be missing out on. Every item imported into the U.S. was at one time unknown in the U.S. The world is full of small businesses that have products that could find a market over here. Overcoming “home bias” could put you in the position to benefit by helping them make that happen.

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