Cultural Challenges of Doing Business Overseas

The Cultural Challenges of Doing Business Overseas

Starting any type of business is risky but for an American to start one in the Czech Republic brings about different types of challenges. Steve Kafka, an American of Czech origin born in the United States, has decided to expand his Pizza business into the Czech Republic. This paper will (1) identify major differences, incompatibilities, risks, and mitigation factor Steve faces, (2) identify comparative advantages that exist and how best Steve can benefit, (3) evaluate Hofstede's four primary dimensions, (4) identify trade barriers, and (5) assess demand, cost, and what Steve should know about price and income elasticites.

The Czech Republic and American market entry differ in many ways. Some studies reports that entry mode of U.S. companies into the Czech Republic is determined by export/import (easiest and most common), licensing, joint venture, consortia, partially-owned subsidiaries, and wholly-owned subsidiaries (Shama, 2000). European firms entry into the U.S. market through three modes: building, buying (most extensive), and partnership (Chowdhury, 2006). "According to Stopford and Wells (1972), entry mode into a foreign market depends on the international experience of the company and the extent of its product diversification" (Shama, 2000). Food is another difference in the Czech Republic and U.S. culture. Traditional Czech food is heavy and difficult to prepare. Hotdogs and pizza are popular snack foods that can be purchased from sidewalk vendors (CultureGrams 2007). Americans are used to an abundance of fast-food restaurants and consume hamburgers, chicken, pizza, and french fries that are a reflection of the busy lifestyle. Americans eat a variety of food from many different cultures such as Mexicans, Chinese, and Italian. Most Czechs do not dine out often while Americans dine out on a regular basis.

Skilled and experienced Czech entrepreneurs are looking for new opportunities, but their financial sources are typically limited (Fact book, 2006). Steve should consider a joint partnership that hires local personnel (including family members and friends) and provides carryout and home delivery service. Many Czechs see franchising as a good opportunity to enter the entrepreneurial world and is becoming familiar to an increasing number of companies and individuals (2006).

Dutch researcher Geer Hofstede found four dimensions of culture that help to explain individuals behavior based upon their culture. The four dimensions were (1) power distance, (2) uncertainty avoidance, (3) individualism, and (4) masculinity (Hodgetts, Luthans, and Doh, 2005, pg. 101-108). Power distance occurs when employees understand and accepts unequal power and authority. They blindly obey orders given by their superiors without question and strive to do what is best for the company. The Czech Republic is a low power distance country with a cohesive and well-educated labor force. Steve should benefit from hiring smart, loyal individuals who takes pride in their work. Uncertainty avoidance occurs when people feel threatened by situations they do not understand or know. Czechs have a low tolerance of uncertainty and this has led to tight policies and rules. Steve has to make his employees feel safe and secure in their jobs. Steve individualistic and self-reliant attitude should allow him to work well in the Czech community. Masculinity versus femininity refers to the distribution of roles between the genders where women's values differ less among societies than men's values (Hofstede, 2006). The Czech Republic is feminine because more value is placed on the quality of life and caring for family more than success, and money. Not everyone agree with Hofstede approach.

Shalom Schwartz took a different approach. "Schwartz's work is separated into an individual-level analysis and a culture-level analysis, a major difference compared to the works of Hofstede and Trompenaars and Hampden-Turner who sometimes fails to clearly distinguish between two levels, although generally claim to work at the culture-level" (Dahl, 2006).

Most barriers to trade in industrial goods were eliminated during the accession process to join the European Union in May 2004 (Country Watch, 2007). The Czech Republic became a member of the European Union with uniformity of regulations, taxes on trade, and factor movements. They have created a free and competitive market. Value-added tax (VAT) and excise taxes will be payable by the recipient of goods on the basis o Czech regulations (U.S. Commercial Service, 2006). Deeper restructuring of Czech firms should create opportunities for Steve and other U.S. investors; however, there are challenges. Population aging will slow growth and undermine sustainability of the economy (Country Watch, 2007).

Consumer's reaction to price change is measured by a product's price elasticity of demand. Consumers are highly responsive to price changes. The elasticity of demand for a product depends on how narrowly the product is defined. Demand for Chicago Style Pizza is more elastic than the overall demand for pizza because there are other substitutes types available.

In conclusion, starting a business in a foreign country present many challenges such as different cultures, values, beliefs, and attitudes. Steve must know and understand the local market and culture before starting his business venture by conducting a thorough a market survey and extensive research.

Reference

Chowdhury, J. (2006). Market Entry Patterns: The Case of European Asset Management Firms

in