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Business in US and The Czech Republic The purpose of this document is to present solutions and recommendations for Steve Kafka, an American of Czech origin and a franchisor for Chicago Style Pizza, who has decided to expand his business into the Czech Republic. This document focuses on the major differences and incompatibilities between the U.S. and Czech cultures. The script also shed lights on the business risks and mitigation on Czech culture. The paper also talks about the comparative advantages that exist in the Czech Republic and Hofstedes four primary dimensions for Steve to evaluate the Czech business environment. The document also points out of any trade barriers that Steve needs to be aware of. Finally the document focuses on how Steve would assess the demand for pizza at different prices, cost structure, infer about the price and income elasticity of pizza.
The culture between United States of America and Czech Republic are different. These two cultures present challenges, incompatibility in languages, society and cultural values and customs. Czech Republic is located in central Europe with 95% population speak Czech. However, the rest of the population speaks other languages such as, German, Hungarian, Romani and Polish. English language is not widely used in the country. Therefore, the obvious difference is the language that is being spoken between the two countries. The Czech society and culture is quite remarkably different than US. Unlike US, the family in Czech culture is the center of the social structure. Obligation and responsibility towards family is a first priority for a person. However, like US, the people of the Czech culture like to plan carefully both in one’s business and personal life. They, however, are very formal and reserved type of people. “One of the most underlying and inherent features of the Czech culture is their polite and humble approach to life. Czechs are both formal and indirect in their communication” (Communicaid, 2005, ¶2). In most American cities you will see people at the street greeting you, but this is not the case for the Czech culture. In addition to cultural differences, the business law and regulations are quite different as well between the Czech and USA culture. In order to do business in Czech one needs to be aware of the taxes and wages regulations imposed by the local government. Unlike USA, there are several taxes exists. Such as the Value Added Tax (VAT) which could be charged by two different rates. “The standard rate of 19 % on the sale of goods and services. The reduced rate of 5 % on the sale of certain goods such as food products, pharmaceuticals used for health care, nappies, printed books and periodicals etc.” (HLB Proxy, 2006, ¶17). The country’s taxation consists of different types of taxes, such as, direct taxes, income taxes, and other taxes. The country also has tax treaty with USA to avoid double taxation on income earned between the countries.
The cultural differences that exist between USA and Czech possess some risks and challenges to establish or conduct businesses. The risk and challenges could be categorized as business practices and government regulations. The business practices in Czech are quite different than the USA. Although Steve is Czech by birth, he may or may not be aware of the root culture of the Czech Republic due to extended living in America. In order to open business and be successful Steve needs to aware of how business is conducted in the country. Steve needs to be aware of the risks which are associated with working practices. For an example, the work hours in Czech cultures are different. The majority of the population would prefer to start and finish work earlier than their western counter part. In addition, the entire month of August could be closed for business. “Czech companies tend to start and finish work earlier than most Western countries, and may close during the month of August. This is especially true for smaller towns and cities” (Communicaid, 2005, ¶8). If Steve is unaware of such cultural differences then he might experience difficulties in running or introducing business successfully to the local customers as well as employees. In addition, a business could very successful when one has good customer relations. Therefore, by knowing how Czech individuals feel about privacy, conduct conversations and address each other could be vital for Steve’s business. If he is not familiar with such business etiquettes he would put his business at risk. In order to mitigate these risks, Steve needs to be aware of the cultural background and information on the country profile to have a clear understanding about the market expectations.
Since Steve is going to employ local employees to run his business in Czech, he must understand the local labor code and government tax regulations. A improper knowledge on these areas could put business at risk well. Czech maintains a minimum wage for men and women and they are equal. Moreover, every business needs to be registered and government has some incentives programs that could help Steve in his business. By studying and seeking the fact sheet of the Czech Republic labor code and government tax regulations could safe Steve from facing difficulties and penalties on foreign soil.
Apart from the cultural differences, Czech Republic has some comparative advantages over USA which could be helpful for Steve in establishing business. The Czech Republic has the reputation of high growth of innovation and the technology sector is booming due to its cheap skilled labor and stable economy. “The country offers easy solutions available at very competitive costs due to its high intellectual capital, good language skills, geographic advantages, cultural proximity to Western Europe and the United States, a modern telecommunications infrastructure, first-class office premises and growth-stimulating investment climate“ (Czech Republic, ¶3). The country offers very highly educated diverse work force at low cost. The political situation of the country is very stable, therefore, a sense of security and productivity prevails. According to A.T. Kearney index for 2004, the Czech Republic considered to be the most popular and attractive location in Europe and the workd for its healthy, stable political and economic growth. Some of these comparative advantages Steve’s could use for his Chicago Style Pizza. For an example, he will be able use the cheap skilled labor for his business. This will give his business the advantage to establish good relations with customers and familiarity of how to operate in business environment per local culture. The local political and economy situations are a great opportunity for him to establish business and expand. Since the Czech Republic is considered the most attractive spot to visit or establish business, Steve could expect customers not only from local but from global market. This could be perhaps the most positive factors of his expansion plan.
In order to expand businesses on foreign land, an evaluation on business environment is helpful. Geert Hofstede’s four primary dimensions could help in evaluating the Czech Republic culture for Steve’s business. The four primary dimensions are power distance index (PDI), individualism (IDV), masculinity (MAS), and uncertainty avoidance index (UAI). Per Hofstede scores (International Business Center, 2004), Czech Republic culture has low PDI indicating power and wealth are evenly distributed, IDV is on the higher end meaning indivdualism higher in the Czech culture, the MAS shows higher as well to indicate male dominated culture, and UAI is very high which means that the country has a low tolerance for vagueness and uncertainty. This leads the country to create laws, rules, and regulations to avoid any sort of uncertainty. However, the Geert’s theory has been criticized by many authors and economists. “Several authors have criticized Hofstede for not taking into account the changing relationship between parent companies and subsidiaries in a globalize economy” (International Business Center, 2004). Although, Geert’s theory was criticized and challenged by others, based on the facts and Geert’s information, Steve will be able to evaluate the culture of the Czech country for making strategic decisions for his business by focusing on the UAI representing the government’s strictness on laws and regulations.
Apart from all the cultural differences, comparative advantages and influence of Geert’s four dimension theory, Steve needs to be aware of the some trade regulations of the country. Czech Republic is committed to have free market and open economy with few trade barriers. However, countries who are exporting goods outside EU need to meet export-import requirements. All goods need to be labeled in Czech language along with English before market the products. The Czech trade also offers free trade zones throughout the country. “There are 10 free trade zones established in several cities throughout the Czech Republic. Materials, components and semi-finished products are exempted from customs duties or VAT if they are imported into a free trade zone” (US Commercial Service, 2007, ¶20).
Once the knowledge of cultural differences is acquired, Steve will need to assess the price for pizza and cost structure for his business. He needs to accomplish the following in order to assess the product price: “set the product price positioning and ensure product delivers against this, review the product’s competitive set and set price range according to its positioning, capture all the product costs, including mark-up, on a spreadsheet, ensure the effect of promotional pricing is included, assess profitability based on Net or Gross margin model, and review pricing levels until you have reached a structure acceptable to the consumer, trade and your business” (Scottish Food Drink, ¶22). Steve also needs to asses the cost structure which consists of marginal, average and total product cost. He needs to consider the local market’s cost of renting or buying a real estate to open his business. In addition, to run a smooth business he also needs to focus on the raw materials that are involved in producing pizza and equipments to serve customers. Finally, Steve needs to infer price and income elasticity of pizza. Price elasticity means quantity demanded due to price change and income elasticity refers to the relationship between change in quantity demand and income. By looking and understand the cultural facts and country’s economy Steve needs set the appropriate price for this food products. However, he needs to be flexible to adjust his price to compete and meet the ever changing customer income conditions and requirements,
In conclusion, Steve Kafka needs to understand the cultural differences and incompatibilities between US and Czech cultures. There are many comparative advantages in Czech culture, such as, cheap but highly skilled and educated workforce, which could be beneficial for Steve’s business. Since Czech is a part of the EU and adopted free economy policy, there are no significant trade barriers for Steve’s business. Geert’s four dimension theory could also be applied to evaluate Czech business environment, such as, UAI. Apart from all these cultural facts, Steve needs to asses the demand for pizza in different prices by following five steps. In order to make sure a profitable venture he needs sets his price of the products according to the local market demands and economy to be successful.