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The Challenges of Doing Business Overseas
Introduction
Steve Kafka is an American business man of Czech origin and a franchisor for Chicago Style Pizza. Steve has determined he would like to extend his business into the Czech Republic. Steve will encounter cultural challenges and will have to overcome risks related to starting up a business in a foreign country. By looking at the major differences and incompatibilities between the U.S and the Czech Republic it will be identified what it will take to get the business to a successful start overseas. Looking at what comparative advantages the Czech Republic has will identify any opportunities for Steve to take advantage of in his business. An evaluation of Hofstede’s four primary dimensions will assist Steve in assessing the business environment for cultural differences in business, and possibly opposing customs and protocols. In addition Steve will have to research any trade barriers, and assess the demand for his product and what type of cost structure he will need to have for his pizza business.
Cultural Differences between the U.S and the Czech Republic
The Czech Republic has changed from when it was a part of the communist regime. Western practices are becoming more common among European countries that are no longer under the reign of communism; however, the culture in the Czech Republic is still more formal than in the United States. When first meeting someone, make eye contact and continue while shaking hands firmly but briefly. “To show respect, one addresses adults by their professional titles (engineer, professor) and last names.”(Culturegrams, 2008). One of the more challenging aspects of starting a foreign business would be getting to know what the workforce in the country is like and to become accustomed to the way the country does business. In Steve’s case the adaptation to a foreign country will entail a sympathetic understanding of cultural variety, insights, labels, and morals (Hodgetts, Luthans, and Doh, 2005). The Czech Republic’s population has developed a reputation as diligent workers and is well known for the skills and discipline of the workforce. The Czech Republic has the second highest secondary level completion rate worldwide, only second to the United Sates. Some cultural differences that would seem relatively minor are a bigger concern to a different culture. The use of utensils is not common when eating pizza in the United Sates, but in the Czech Republic, “When eating, always use utensils. Note that very few items are eaten with the hands. Also, adhere to the European standard of the fork in the left hand and the knife in the right hand. Avoid the Americanized “cross over” where one uses the knife only to cut meat, while using the fork in the right hand otherwise. Place your utensils together on one side of the plate when you have finished eating. The best practice is to place your knife and fork together in the 4 o’clock position on your plate. Meanwhile, if you wish to pause between courses, cross your utensils on the plate” (Culturegrams, 2008). Western business practices are also becoming more common as are the cultural customs, but do not forget to always start with the formal cultures ways as a measure of respect for the country you are in.
Comparative Advantages of the Czech Republic
The Czech Republic grows its own wheat, potatoes, sugar beets, hops, and fruit, while the agricultural areas commonly raise pigs and poultry. The well known industries are aramaments, glass, machinery and equipment, motor vehicles, and metallurgy. The natural resources of the country are hard coal, soft coal, kaolin, clay, and graphite (Culturewatch, 2008). The Czech Republic is very centrally located and is know as a so-called bridge between eastern and western Europe. Import and export commodities are machinery, transport equipment, chemicals, raw materials, and fuel. The Czech Republics partners in import are Germany, Italy, China, Slovakia, France, Russia, Austria and Poland. The partners in export are Germany, Slovakia, Austria, The United Kingdom, Poland, France, Italy and The Netherlands. None of the noted imports or exports are ones that will gain Steve any advantage for his business, however, according to an article by Andrea Fennesz-Berka, “Since the opening of the Czech borders in 1993, travel has become very important to people in the Czech Republic who want to experience different cultures. This has created a demand for ethnic foods. As a result, Mexican restaurants and others that serve ethnic food are now becoming popular” (AgExporter, 1996).
Hofstede’s Four Primary Dimensions
Hofstede’s primary dimensions are: Power distance, Uncertainty avoidance, Iindividualism, and Masculinity. Hofsted’s dimensions theory can apply to any company trying to establish themselves in a foreign country. To accomplish the goal of having a profitable business in another country, Steve needs to be sure to have researched business practices common to the culture, personal differences in how different business models are percieved, and differences in how the company’s employees are interacted with by the owner or manager. “For those who work in international business, it is sometimes amazing how different people in other cultures behave. We tend to have a human instinct that ‘deep inside’ all people are the same – but they are not. Therefore, if we go into another country and make decisions based on how we operate in our own home country – the chances are we’ll make some very bad decisions. If understood and applied properly, this information should reduce your level of frustration, anxiety, and concern. But most important, Geert Hofstede will give you the ‘edge of understanding’ which translates to more successful results” (Hofstede-Itim, 2003). Overall the Hofstede theory can assist Steve by preparing to accept cultural norms of the Czech Republic and to apply these to his business as he starts preparing to do business.
Trade Barriers in the Czech Republic
The Czech Republic is a member of the European Union as of 2004, and the WTO as well. “Most barriers to trade in industrial goods with the EU fell in the course of the accession process. The process of accession had a positive impact on reform in the Czech Republic, and new EU directives and regulations continue to shape the business environment. Free trade in services and agricultural goods, as well as stronger regulation and rising labor costs, will mean tougher competition for Czech producers” (U.S. Department of State, 2008). Fe real trade barriers exist that will affect the goal of opening a business in the Czech Republic.
Assessment of the demand for Pizza
To determine the demand for pizza and estimate the price that should be charged Steve would have to research and observe any restaurants that are currently serving pizza and assess the environment the pizza is being served in. If the environment Steve would like is more formal, he will need to observe the cost situation and demand for the product at a formal dining level. If Steve only wants an informal and low level street cart environment, he will need to assess the prices and demand of that environment. Steve will have to find the local cost of goods he will need to operate his pizza business and assess the amounts and overall cost from there. Price and Income elasticity’s will depend upon the type of pizza operation that Steve ultimately chooses to open. His client’s income and ability to purchase will be determined by the overall scale of his restaurant. Once Steve has accrued all the necessary data, he will be able to assess the overall decision to open a pizzeria in the Czech Republic.
Conclusion
The concept of cultural differences is a part of any company’s decision to open a franchise or division overseas. Hofstede’s theory came down to the fact that research gives us insights into other cultures so that we can be more effective when interacting with people in other countries. There are no major trade barriers that would be encountered if Steve were to open a pizza franchise in the Czech Republic and no comparative advantage that will assist Steve in his business. The running theme found throughout the paper is that if proper research is done into the appropriate country’s culture, the barriers, risks and advantages should be clear as to what process is necessary for opening a franchise in a foreign country.
References
Countrywatch. (2008) Countrywatch Reviews, Czech Republic. Retreived March 20, 2008 from http://search.countrywatch.com.ezproxy.apollolibrary.com/cw_searchresults.aspx
Fennesz-Berka, Andrea. (1996) AgExporter:Czech Republic and Slovenia offer opportunities for U.S. consumer foods. Retrieved March 20, 2008 from http://findarticles.com/p/articles/mi_m3723/is_n8_v8/ai_19209849
Geert-Hofstede-Itim. (2003). Geert Hofstede Cultural Dimensions. Retrieved March 20, 2008 from http://www.geert-hofstede.com/
Hodgetts, R. M., Luthans, F., Doh, J.P. (2005). International Management: Culture, Strategy, and Behavior 6e, Chap. 4, The Meanings and Dimension of Culture. The McGraw-Hill Companies.
U.S. Department of State, Bureau of European and Eurasian Affairs. (2008). Background Note: Czech Republic. Retrieved March 20, 2008 from http://www.state.gov/r/pa/ei/bgn/3237.htm#