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Cultural Challenges Of Overseas Business

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The Cultural Challenges of Doing Business Overseas


The Cultural Challenges of Doing Business Overseas

Steve Kafka, a franchisor for Chicago Style Pizza, is weighing the options of extending a new franchise into the country of the Czech Republic, the country of his family's origin. Though Steve has made several trips into the Czech Republic, speaks the language and knows many people, he must seriously consider all of the opportunities and potential barriers to this new venture. This paper explores the positive and potentially negative cultural differences between the United States and the Czech Republic. Next, potential competitive advantages are examined along with Hofsteade's Primary Cultural Dimensions to reveal clues to the culture in light of the new business. Finally, trade barriers and price income and elasticites are discussed.

Culture Differences

There are several differences in culture between the United States and the Czech Republic, though those differences are not insurmountable. Steve must understand some basic principles of business etiquette that are considered acceptable in the Czech Republic in order to be successful. For a business, word of mouth advertizing is the best way to gain new customers. If a major advertizing blitz is attempted, it may be considered suspicious and might backfire (Czech Republic: Travel information, 2007). As contacts with other local businesses are needed to make the new franchise successful, such as produce and drinks, appointments with those businesses should be made weeks in advance. The Czech's prefer not to have last minute engagements. As an employer, it should be understood that mothers and fathers are expected to receive several months of paid leave when a new child is born. Once the business has started, Steve must take this into consideration when hiring workers and have the capital to pay for this leave when the need occurs (Czech Republic, 2007). As well, there are some differences in dining etiquette. All foods are eaten with knifes and forks as opposed to eating food with the hands, such as the traditional American way of eating pizza. However, this practice is starting to be contested, as snack foods such as pizza and hot dogs are becoming more common. Along with this, it would be advantageous to ensure that the business is well stocked in local beers since it is considered the beverage of choice among natives (Country review: Czech Republic, 2007).

Potential Competitive Advantages

There are several competitive advantages in the Czech Republic that make it a good location for starting a new franchise. The general labor costs are low and technical skills are considered high compared to the rest of Western Europe. This could be used to the advantage of the business to foster stronger growth. Contrasting viewpoints, however, highlight that the challenges of the Czech labor market is labor mobility. Workers are not willing to move around the country looking for work. If an area of a large city, such as Prague, has low unemployment levels, then workers may be hard to find (Kay, 2007). Another potential advantage is the trend toward the increased acceptance and consumption of fast food in the Czech Republic. Franchises such as McDonalds and Kentucky Fried Chicken have made great strides within the country posting solid profits. With this success, other franchises such as Applebees and Tony Romas are actively engaged in opening business in Prague (Hofman, 2007).

Pizza, as a food, lends itself to socialized events and gatherings. As a culture, the Czechs enjoy socializing which usually take place in pubs and restaurants. It is rare when social events are held in private residences. If the business was set up to maximize large gatherings and allow for social interaction as opposed to individually secluded tables, it could attract more customers (Czech Republic, 2007). As a business, the pizza market is not very well established. Most of the population buy pizza from mobile street vendors. As an established restaurant, competition would currently be low since other well known established pizza franchises have not yet been established in the Czech Republic. This is not to say, however, that they are not considering it.

Hofsteade's Primary Cultural Dimensions

Hofsteade's four primary dimensions of culture should be used to help understand the cultural dynamics in which business will be conducted. A proprietor will interact with a culture on many levels, from buying raw ingredients and interacting with customers to dealing with government officials. According to the Geert-Hofsteade web site (Czech Republic Geert Hofstede Cultural Dimensions Explained, 2003), the Czech Republic scores across all metrics as follows: (a) Power Distance 35, (b) Uncertainty Avoidance 74, (c) Individualism 58, and (d) Masculinity - 45.

Power Distance What this states is the idea that people in the Czech Republic are willing to think for themselves as opposed to waiting for someone, such as a superior, to tell them that something new is appropriate behavior. This is a favorable indicator of success since a pizza-based restaurant may be a different concept in the Czech Republic, but people will not be afraid to try something new on their own.

Uncertainty Avoidance The score of 74 indicates that Steve must be prepared as a businessman for a high level of paperwork for every contractual agreement and may need to understand that every agreement will be negotiated to the slightest detail. As a proprietor working with customers and employees, any written forms of communication, such as menus for customers or instructions for employees, may need to have more detail than what would be considered acceptable in the United States.

Individualism The score of 58 shows that the Czech people are in the middle of the scale between individualism and collectivism. As noted before, the Czechs are a social people. Understanding how social (collective) or how individual a culture is can help guide a business on how customers can expect to interact with the business and other customers.

Masculinity This shows a cultural preoccupation with success, money and things. Scored at a 45, the Czechs can be considered generally more interested in the values of society and social issues than commercial and personal success. As a business owner, Steve must then understand that employees may concentrate more on social interaction than with the tasks needed to do their jobs. Likewise, the customers may expect more interaction with employees than what is experienced in other



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