The Challenges of Doing Business Overseas
Introduction
Steve Kafka, an American of Czech origin and a franchiser for Chicago Style Pizza, has decided to expand his business into the Czech Republic. Steve anticipates he will face some difficulties at the new location in Prague, Czech Republic. This paper will define the major cultural differences, and major business risks because of these differences between, the United States and the Czech Republic and will discuss some ways to mitigates these risks. Analysis of the comparative advantages the Czech Republic has is another topic of this paper. This paper also discusses Hofstede’s four primary dimensions and how they help Steve evaluate the business environment in the Czech Republic. An analysis of the demand for pizza and how to assess the cost structure ends this paper.
Cultural Differences Between the United States and the Czech Republic
The culture in the Czech republic emphasizes conformity and cooperation. The economy has transitioned from a planned to a free market economy after the spilt of Czechoslovakia in 1993. To show respect people in the Czech Republic use a person’s title and last name. The workdays begin between 7am and 8am and end between 3pm and 4pm and during the work week most adults eat at work. Most stores and businesses do not stay open late and people in the Czech Republic do not dine out very often. Young couples live with parents but work hard to gain independence and children are encouraged to belong to organizations but prefer to watch TV or play video games. Usually women prepare meals and recently a healthier diet that is easier to prepare has become popular. Most meals are eaten using utensils and very few items are eaten with hands. Plates are prepared in the kitchen and carried to the table. Recently hotdogs and pizza have become popular snack foods that can be purchased from sidewalk vendors. During leisure time Czechs frequent local forests, fields, mountains and lakes and soccer, tennis, and ice hockey are popular sporting events.
Opening a successful pizzeria in the Czech Republic will be difficult because of eating habits and because pizza is considered a snack food. Because meals are eaten at work or prepared at home and most businesses do not stay open late there won’t be much business for a pizzeria. But because Steve is opening this business in Prague, the capital city, and eating habits are trending toward dining out business may be slow at first and should steadily grow in the future. Steve can mitigate these risks by positioning his business as a family oriented establishment. Because beer is commonly consumed Steve can serve it in his restaurant. Steve can also place utensils on his tables at the place settings.
Comparative Advantages in the Czech Republic
The Czech Republic grows most of its own wheat, hops, sugar beets, potatoes, barley, rye, onions and fruit, however it imports more vegetables than it exports. There may be an advantage in pizza crust dough and beer, but there are no other advantages. There are no comparative advantages Steve can take advantage of.
Hofstede’s Four Primary Dimensions Model
The elements of Hofstede’s four primary dimensions modes are:
1. Power distance
2. Uncertainty avoidance
3. Individualism
4. Masculinity
Recently Hofstede added a fifth dimension to his model named Long Term Orientation. The following chart compares the models of the United States with the Czech Republic.
PDI Power Distance Index
IDV Individualism
MAS Masculinity
UAI Uncertainty Avoidance
LTO Long Term Orientation
Power Distance Index is the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally. This represents inequality (more versus less), but defined from below, not from above. It suggests that a society’s level of inequality is endorsed by the followers as much as by the leaders. Power and inequality, of course, are extremely fundamental facts of any society and anybody with some international experience will be aware that ‘all societies are unequal, but some are more unequal than others’.
Individualism on the one side versus its opposite, collectivism, that is the degree to which individuals are integrated into groups. On the individualist side we find societies in which the ties between individuals are loose: everyone is expected to look after him/herself and his/her immediate family. On the collectivist side, we find societies in which people from birth onwards are integrated into strong, cohesive in-groups, often extended families (with uncles, aunts and grandparents) which continue protecting them in exchange for unquestioning loyalty. The word ‘collectivism’ in this sense has no political meaning: it refers to the group, not to the state. Again, the issue addressed by this dimension is an extremely fundamental one, regarding all societies in the world.
Masculinity versus its opposite, femininity, refers to the distribution of roles between the genders which is another fundamental issue for any society to which a range of solutions are found. The IBM studies revealed that (a) women’s values differ less among societies than men’s values; (b) men’s values from one country to another contain a dimension from very assertive and competitive and maximally different from women’s values on the one side, to modest and caring and similar to women’s values on the other. The assertive pole has been called ‘masculine’ and the modest, caring pole ‘feminine’. The women in feminine countries have the same modest, caring values as the men; in the masculine countries they are somewhat assertive and competitive, but not as much as the men, so that these countries show a gap between men’s values and women’s values.
Uncertainty Avoidance deals with a society’s tolerance for uncertainty and ambiguity; it ultimately refers to man’s search for Truth. It indicates to what extent a culture programs its members to feel either uncomfortable or comfortable in unstructured situations. Unstructured situations are novel, unknown, surprising, different from usual. Uncertainty avoiding cultures try to minimize the possibility of such situations by strict laws and rules, safety and security measures, and on the philosophical and religious level by a belief in absolute Truth; ‘there can only be one Truth and we have it’. People in uncertainty avoiding countries are also more emotional, and motivated by inner nervous energy. The opposite type, uncertainty accepting cultures, are more tolerant of opinions different from what they are used to; they try to have as few rules as possible, and on the philosophical and religious level they are relativist and allow many currents to flow side by side. People within these cultures are more phlegmatic and contemplative, and not expected by their environment to express emotions.
Long Term Orientation versus short-term orientation: this fifth dimension was found in a study among students in 23 countries around the world, using a questionnaire designed by Chinese scholars It can be said to deal with Virtue regardless of Truth. Values associated with Long Term Orientation are thrift and perseverance; values associated with Short Term Orientation are respect for tradition, fulfilling social obligations, and protecting one’s ‘face’. Both the positively and the negatively rated values of this dimension are found in the teachings of Confucius, the most influential Chinese philosopher who lived around 500 B.C.; however, the dimension also applies to countries without a Confucian heritage.
As seen in the graph citizens of the Czech Republic have a greater feeling that power is distributed unequally than in the United States and they have more ability to deal with uncertainty. Their culture has a greater feeling of community and a greater willingness to help a fellow citizen out than in the United States and the distribution of roles between the genders is close to that in the United States. The Czech Republic has a shorter term orientation that the United States which suggests the citizens have more respect for tradition, fulfill their social obligations and attempt to protect their reputations. There is a wide difference in all the elements except masculinity which suggest the culture of the Czech Republic is much different than that of the United States. With this analysis Steve can plan for these differences and armed with this understanding of the culture be better prepared for the change.
Trade Barriers Within the Czech Republic
The Czech Republic is a member of the European Union and a member of the World Trade Organization. There are few trade barriers that would affect Steve’s attempt to open a pizzeria in Prague.
Assessment of the Demand of Pizza
To assess the demand of pizza at different prices Steve would research any current restaurants serving pizza. He would survey the vendors that sell pizza on the street to determine their prices and the demand for their products. Steve would analyze the cost of ingredients, labor, and overhead for the restaurant. Once he had this data he could evaluate the per pizza cost and compare that with the demand for pizza to determine the business sense of opening a pizzeria.
Conclusion
This paper has defined the major cultural differences, and major business risks because of these differences between, the United States and the Czech Republic and has discussed some ways to mitigate these risks. Research has shown there are no comparative advantages of the Czech Republic regarding Steve’s pizzeria . This paper also discussed Hofstede’s four primary dimensions and discovered there has been one added and how they would help Steve evaluate the business environment in the Czech Republic.
The success of a pizzeria will depend on the growing cultural influence of the west within the Czech Republic. Business will be slow until Steve establishes a family oriented atmosphere and until the culture of the Czech Republic accepts dining out at a pizzeria.
References
http://europa.eu/scadplus/leg/en/05020.htm#TRADEGLOBAL
http://www.countrywatch.com.ezproxy.apollolibrary.com/cw_topic.aspx?type=text&vcountry=47&topic=MAOVR
http://online.culturegrams.com.ezproxy.apollolibrary.com/secure/world/world_country.php?contid=5&wmn=Europe&cid=41&cn=Czech%20Republic
http://www.geert-hofstede.com/hofstede_dimensions.php?culture1=95&culture2=22#compare