Cultural Challenges of Doing Business Overseas

Running head: Cultural Challenges

Cultural Challenges of Doing Business Overseas

Cultural Challenges of Doing Business Overseas

Introduction

Steve Kafka, an American of Czech origin and a franchisor for Chicago Style Pizza, has decided to expand his business into the Czech Republic. He knows this will be a risky decision; when he became a franchisor, he had to overcome a great deal of difficulties. Steve anticipates he will face some of these difficulties again at the new location in Prague, Czech Republic. Although he was born in the United States, he has family and friends in the Czech Republic, speaks Czech fluently, and has visited the country of his origin several times. This paper includes research on the Czech Republic and gives vital information that will help Steve move forward in his decision to expand his business.

Major Differences and Incompatibilities Between U.S. and Czech Cultures

Major incompatibles between U.S. and Czech cultures are 1) solid competition from European companies with historical and economic connections to the market, 2) purchasing power lags behind Western Europe and the U.S. and 3) corruption in government. The Czech Republic is geographically small and is a market where quality personal relationships are critical, and everyone seems to know everyone else. Therefore, it is recommended that Steve approaches his endeavor using the family and friends ties as a business agent. The Czech Republic has become a wise destination for foreign investors. Less popular, are joint venture. "Although the law allows 100% foreign ownership, foreign companies are sometimes reluctant to acquire a Czech firm outright because of environmental or other long-term liabilities" (Doing Business). The Prague business environment is small, but the skilled, local investment banking community could assist Steve in structuring acquisitions or joint ventures.

Comparative Advantages

The Czech food market is quickly transforming as consumers have more spending power. Most Czech's do not dine out often, but an increase in the buying power of younger consumers have changed eating habits gradually to become more open to foreign influences. Hotdogs and pizza are popular snack foods that can be purchased from sidewalk vendors. The food industry is highly competitive and composed of a large number of private players. The Czech food market is quickly changing as consumer spending power increases. The expansion of foreign-owned supermarkets and the increase in the purchasing power of younger consumers means eating habits are gradually becoming more open to foreign influences. Foodservice sales currently have positive growth which is stimulated by an increase in foreign and domestic visitors. Domestic visitors to foodservice outlets increased mostly due to higher disposable incomes and like in the United States, the popularity of family outings. Again, like in the United States, Steve can take advantage of offering lunch menus at inviting prices that will bring in more sales.

The majority of consumer foodservice operations remain independent, with the largest presence being in fast food. Chains are developing gradually, because domestic companies lack investment. This is another advantage Steve can seize. As in the United States, the demand for ready-to-eat meals is increasing as more women join the workforce, and consumption of fresh fruits and vegetables is also growing, as people become more health conscious. Consumers prefer domestically made products, which are cheaper than imports. With almost one-third of the population overweight or obese, the market for diet foods is expected to grow. Steve can offer a variety of pizzas that are targeted to the health conscious.

An article in the Czech Business Weekly states that one Czech pizza competitor TelePizza chose the Czech Republic for its expansion for two essential reasons. The first is "the enormous potential of the country for delivery service, on which TelePizza concentrates and is the market leader in all countries where it is active. The second reason is its geographic and cultural proximity to Poland, which gives the chain a competitive advantage on the Czech market." Other competitors including Pizza Express and Pizza Go Home, claim there is not much space for a new pizza chain and say the market is already overcrowded. Some pizza companies, such as Pizza Taxi, have already shut down. Steve can use his expertise and domestic ties and continue to foster healthy competition that is beneficial for customers because it will escalate the quality of service. U.S. pizza giant Papa John's is also planning to open a restaurant in Prague and to add up to five locations around the country within two or three years. Thomas Flaherty, the director of international business development for Papa John's International, said the Czech Republic is "a very promising market" for pizza chains.

Evaluation of Czech Business using Hofstede's Primary Dimensions

Power Distance Index

The Power Distance Index looks at how much a culture does or does not value respect for authority and hierarchical relationships. Czech Republic scores relatively low in this dimension. This means superiors treat subordinates with respect and do not pull rank. Blame is either shared or often accepted by the superior. Subordinates are trusted with important assignments. Czech Republic has a lower PDI than the U.S. and Steve should not expect that people will want to get to know him in an informal manner with little protocol or etiquette. Steve should involve others in decision making and be more inclusive in his management style. Steve should not expect to be treated with the respect he may be accustomed.. Finally, Steve should not base judgments of people on appearance, demeanor, or status symbols.

Individualism

Individualism looks at how much a culture emphasizes the rights of an individual versus those of the group. Czech Republic scores about 60 and the United States scores about 90. This means "we" is more important than "I," conformity is expected, individual's desires and aspirations should be curbed if necessary for the good of the group. Steve can use this information and take note that individuals will have a strong sense of responsibility towards