International marketing strategy comparison of Spain and Czech Republic

International Marketing Comparison of Spain and Czech Republic

This paper is written out in the form of a comparison between the two countries of Spain and Czech Republic. In all the sub-heads, the situation in Spain is first discussed and that is followed by the relevant description about the Czech Republic. In all reasonableness, Spain has been a poor country with low employment, and this is being solved with temporary employment of the citizens. The unemployment was as high as 20%, and this certainly does not give much hope for a new product. The unemployment problem has been somewhat controlled, but this has led to a very high temporary employment, and these people are very poorly paid, and this also does not give much hope for purchases. Comparatively, the Czech Republic has been a country with a stronger economy due to the developments of the country over the last fifteen years. It is also a country with a history of industrialization which Spain is not. The atmosphere in the two countries are not similar with Spain being full of people with an autocratic bent of mind, and Czech Republic being full of people who are uncertain of the future.

As a country, Spain has been independent for a long time, whereas the Czechs have been free for only 50 years out of the last 1000. Thus there are a lot of cultural and economic differences. The similarity is in the fact that both are going to be a part of the European Community shortly and thus subject to the same or very similar sets of laws. Thus in terms of the legal position there will be little difference, but more than the letter of the law there is a difference in the understanding of the law by citizens, and in this aspect, Spain is clearly a superior country. The other aspect is the view to countries outside the home, and in this there is a clear indication that the people in Spain, in spite of their internal differences, would like to be well connected to the outside world. Regarding the Czechs, this attitude is uncertain as most of the time it is only the outsiders who have come to their country. The appeal of the Internet is thus expected to be higher in Spain than in the Czech Republic, at least during the next ten years or so.

Introduction

The point to be noted is that these countries have different backgrounds in the sense that Spain has been a country in Western Europe with less of communist influence as compared to the Czech Republic. Yet, the general rule in Spain was also the autocratic rule of Gen. Franco for a long time. In economic terms, the countries were not materially different, but Czech Republic has a better history of engineering and technical background. The problem with the Czech Republic has been that it has ad very little of independence for a long time, and this has kept in the mind of people a lot of uncertainty about the future.

1. Country analysis

Economic/competitive environment

In Spain there has been slow growth of the economy and the growth was around 2% in 2002. The difficulty with the country is high inflation and this is higher than the rest of the Euro area. The activity has been better from the second half of 2003, and this has led to the lowering of increase in unemployment and expected high growth in GDP. The growth of inflation in the country can be stopped only through reforms in the structure of the country, and fiscal policies were not expected to be of much use. Another required method for growth was the required changes to the system of bargaining for wages and this can be achieved only when the rigidity in the wage structure is reduced.

The consumption at the public level is increasing, but the growth in demand of the domestic consumers was slow at 2% during the second half of 2002. The only sector where growth was steady was in the area of constructions, but the investment in equipments was dropping for three quarters, but started on a recovery in the second half of 2003. There was a rapid growth in exports in the third quarter of 2002, yet the increased foreign demand did not make much difference to the total economy, as the imports also grew at a very fast rate. The growth in terms of GDP was only around 2% during 2002. Employment which was growing fast earlier also did not grow very fast, and the unemployment rate was high at 11.5%. The growth in terms of wages was relatively stable and the total growth in wages was around 3%, and this is not a real growth, since there was a high inflation.

The situation may change at the end of 2003, when the wages will be revised as per many wage-inflation agreements. The budget had forecast a growth of 3% for 2003, and also included a cut in personal income tax, and the total rate was to result in a loss of revenue of around half a percent point. This in practice may be considered to be a neutral financial position. Totally the GDP is expected to have a better growth of 2% in 2003, and the growth in 2004 is expected to be over 3%. The labor force is growing rapidly in the country and the unemployment rate is on the rise, but due to the total financial picture, the inflation should be falling to around 2.5% by the end of 2004. In the meantime, there is a continuous worry about the continuing inflation as it is reducing the competitiveness of the country. (Developments in individual OECD countries: Spain)

Though Spain has been one of the first to be in the European community, the Czech Republic has shown interest in being one of the members and through the result of the Nice summit that was held in December 2000, the citizens of Czech Republic should a part of the electorate for the elections to the European Parliament in 2004, June. The growth of the economy in the country has also been high and nearly 70% of the exports of the country are directed to the European Union, and that too mainly Germany. Those economies had not been doing so well, but the growth rate of the Czech economy has been quite high at around 3.6% for quite a long time now, from 1996. This rate of growth is higher than the average of the European Union countries. There has also been quite a high export of goods and the growth has been at 13.3% per annum in 2001 and the imports have grown by 11.6%.

The total economic situation slowed down during the second half of that year, and again the reasons for that are well-known. In spite of a troublesome international situation, the country has progressed well and there are expectations that the country will do even better in the coming years. The total aim of the country is now concentrated on the attempt to become a member of the European Union. This country had to adopt and implement the legislations that were required for the purpose. There were also the methods to be adopted for the same and the changes of standards and procedures, etc. If the country is able to become a member of the Union, it is expected to help the country conduct business in a more transparent manner and also bring in a suitable environment for investment. This is expected to help the country to attract foreign investment. The country needs foreign investment to enable it to speed up the development of the economy and then catch up with the position that other countries of the European Union are now in. (Exclusive Interview)

Political/legal environment

The largest share of workers in Spain is of temporary workers under contract and these workers are mainly women and young people. They do not get the benefits of the permanent workers. The regular workers are entitled to severance pay when they are terminated, and that is at the rate of 33 days for year of completed work, but the temporary workers are not entitled to these benefits. These workers provide a flexible source of workers for employees, and they can hire or fire according to their requirements. They serve as the loopholes through which the organizations can remain competitive and this is through the shifting of the cost of layoffs onto the workers. This has been noted by the European Industrial Relations Observatory and the Spanish employers are known to practice chain fixed term contracts and rotation of temporary contracts though these practices are illegal under the Spanish law.

These methods are essentially the creation of a labor force of permanent temporary workers. These workers are permanent in the sense of their not requiring retraining when they come for working, but are still on a temporary contract, so they do not get the benefits of permanent workers. The United States also has similar workers in Silicon Valley, and these workers there are called perma-temps. This is now being countered by the government through the lowering of the costs of discharging permanent workers during the reforms of 1997 and March 2001. This has only resulted in giving employers more powers over the permanent employees, but not reduced the practice of temporary contracts. There had been an initial increase in the growth and job creation due to these reforms as these provided an increase in flexibility and reduced the costs of labor.

At that stage the unions were just satisfied to have jobs, but the attitudes have changed now due to the effect of inflation, and the unions cannot agree to low cost jobs. This is causing a lot of strikes due to the demand for higher wages as was seen in the airports at Balearic Islands. This also affected the tourists in coming to the country. Yet the economy has grown a lot in tourism and other service industries due to this supply of relatively cheap labor. The increase in employment has not however instilled greater confidence in the economy as it has not resulted in a broad-based market that would sustain economic growth. The only result has been a reduction of long-term unemployment, and easier employment of workers, but the consumption is still low and the economy is also weak. (A Cracked Foundation for Spain's Economy)

Some of the legislation that is used in Spain is even better than the laws used in Britain and they use a variety of protective measures for protection like extensive laws, imperative laws, special laws and control through public authorities. For these laws, the nature of the right as right is first made, and this ends up protecting the third parties even better than the contractual rights. This also has the result in international litigation which directs the jurisdiction and applicable laws to the country where the development has taken place. This helps the legislator by reducing his own problems. (How legislation may effect product decisions. The specific examples of Spain, United Kingdom and Finland)

The laws of the Czechs are a little peculiar as the country has been occupied by many foreign countries and that includes Austria, Germany and till very recent times, Soviet Russia. It was only in 1989, there was the occurrence of what is now called the Velvet Revolution when the Communist leaders resigned without a battle to protect their superior powers and there was the installation of a democratic government without any pitched battles for independence. This gives us an idea of how long the Czechs have been independent - a total of about 50 years during the last 100 years of their existence. This lack of independence has given them a feeling of inferiority, and a distinct lack of patriotism. The Czechs thus have a complex mixture of passive-resistant- pessimism and that is almost a part of their character like their love of comfort.

The people are in general peaceful, and love their national food, as also sitting in pubs for very long periods. Yet, they are not very humorous and happy, but they have instead a sense of dark humor. They have various sayings and one of that can be roughly translated to "Things could always be worse." Yet it is not that they do not know how to make friends with others, and on getting friendly with one Czech, the relationship will soon spread with other Czechs. Yet one should not make any attempt to suddenly develop the total network with use of a lot of business meetings and e-mails. That sort of action is more likely to arouse suspicion than gather business. The people there prefer to slowly get friendly with people, and collect the information about individuals from others, and the company that you work in.

Then if the people think that they would be comfortable with you, then there may be meetings for making of deals during dinners, along with the dessert or even later at separate meetings. The people are very generous and will always open a meeting with an offer of coffee, tea, water, juice and even cookies when they are the hosts of business meetings. The only thing is that they are not going to interrupt their weekends and holidays as those are reserved by them for the family, and they do not permit business to interfere with their family time. (Moving to Czech Republic)

Technological environment

The technology in Spain is relatively modern and there have been presentations showing Spain into the digital age in 2000. This exhibition showed what was then available for consumers and what was expected to come next. The exhibition was visited by over half a million visitors, and the numbers are continuously increasing. The display was conducted by more than 114 companies for both digital audio-visual equipment as well as Internet equipment. The exhibitors included Sony, Pioneer, Sharp, Epson, Kenwood, Planeta, Warner Home Video and Columbia. The advance of DAB has been going on in Spain, and the first tests were carried out in Madrid, Barcelona and Valencia in April 1998, but the operations started only in 2000. The delay was due to the definition of the rules and regulations of the transmissions on the ground.

Only after the laws were clearly defined, did the investors invest. There was a comprehensive study of the electronics industry in Spain, done by Aniel and released at the exhibition. The industry is apparently in a good position due to the conversion to digital equipment and the Internet. There has been increase in production, imports and exports and there have been a number of new companies to take advantage of the change in the industry. The market for industrial electronics and telecommunications has reached 5.3 billion pesetas in 1999, and out of this, 3 billion pesetas were due to the telecommunication services and industrial electronics was 2.4 billion pesetas.

The main causes for the growth were the boom in cell phones as also a rapid increase in demand for radios and videos for the house. The growth of imports was very high at roughly 27% and the exports were static at around 2% growth. The growth in demand of consumer electronics was high during the year at about 16% and the main reason for this was probably the general development of Spain. The production of goods in this sector was low as there was a drop in the production of TV sets which were being manufactured for exports to Eastern Europe, and there the economy was not doing well. (Spain's Digital Fiesta: Industry Trend or Event)

The technological situation in the Czech Republic is much more advanced both from the position of the country and the long industrial culture that it has. The question has now come as to whether the Czech citizens remain as good skills as they had earlier of being qualified, skillful and creative in their capacities. There has been a lot of development of technology in the past decades and especially in the area of information and communication technologies more than the other areas of technologies. The development of skills in this area will require them to develop quickly and adjust their abilities, skills, knowledge and attitudes for the tough and inevitable challenges that will come in the near future.

For the development of these technologies it will require the development of their networks for the schools as also Internet for the students at school, home and at the student hostels. This will face difficulties due to the regular problem that the schools have for funds. In all sections of the system of education in the Czech Republic there are continuous problems of funds. The support given to adult education in information literacy and the attention paid to the question of literacy is also low when compared to the prevalent situation in the other European Union country. Another major shortcoming of the Czech system is the lack of knowledge of English among the general population which is required for achieving information literacy. This is a very important factor for the competitiveness in the international sphere for the labor of different nations.

There was a survey made in the Czech Republic which showed that only 15% of the people can speak English and a total of only 55% can speak any foreign language. The advantage with the employees in the Czech Republic was that they had a high proportion of tertiary and secondary technological schools of good capacity. This gave in the workers a high proportion of skilled workers and employees. This advantage is getting reduced during the past few years as the younger generation are not entering the required schools and colleges which can provide the same high quality of education. At the same time, there has been a rapid increase of unemployment in the country and in some parts of the country the unemployment rate is even more than the benchmark figure of 20%. These are the difficulties and problematic steps that Czechs are going through. In spite of this there are now many Czech businesses and their managers who have built up systems which are very competitive.

In certain cases, the businessmen from Czech country have become renowned for their professional expertise in foreign companies. Still there is little connection of the education system of the Czech Republic to the requirements of the businessmen. The system of education is highly conservative and this is the situation even in technical education. The system has not changed even after the change of the system in the country. This situation calls for urgent change and making the secondary schools international. Only this can provide the youth with education that will be comparable to the general standards in Europe. There should also be alarm at the fact that among the twenty-year-olds in Czech Republic there are only 24% of students, whereas in the total of the OECD countries, the average is 44%. (Human Resources Development Strategy - Czech Republic

2.Product and market analysis

Marketability

To determine the marketability of any product, there is a requirement of high knowledge of the functions of the product and the relevant requirements of its functions in the market. It is being assumed that the growth of the new Information Technology will be helped by the use of this product. There is a high growth of this technology in most countries, and that is the reason why this product would be of great use in those countries. Regarding the two countries being considered, the Czech Republic and Spain, the penetration of new information technology is low as compared to the rest of Europe, and so the market may not be viewed to be as good as the rest of Europe. It has been the decision to discuss the introduction of the product in only these markets, and so the discussion will be limited only to a comparison of these markets.

Advantages/disadvantages of trying to market this product in Spain or Czech Republic

In Spain there is a clear attempt for observation of international laws on trade marks as was seen in the case of Anheuser-Busch vs. Budjovicky Budvar. The brand name of Budweiser was being used by both the parties in Spain, but the Spanish Provincial Court of Appeals ordered Budvar to stop using the name. The ruling of the court was that the Czech brewer, Budvar has to stop sales of beer in Spain under the trademark of Budweiser Budvar. There was also a further ruling from the court that Anheuser-Busch is entitled to damages caused by the use of trademark by Budvar (Budvar must stop using Bud name in Spain). This shows that it is clear that marketing in Spain is safer from a brand name protection point-of-view than in Czech Republic. This is not a major difference in terms of the product which is an intermediate product and will be of use only to distributors of the facilities, and not the consumers. Thus this difference may not be of much significance, but the protection of the technology is important, wherever the product may be manufactured. This protection may be safer in Spain than in the Czech Republic, and so it may be said that Spain may end up being a better market.

Potential and problems

There is a lot of growth of the electronics industry in Spain and the company Manufacturers' Services Ltd., also known as MSL has finished putting up a second plant in Spain. This is the fourth plant of the organization in Europe and it will be based in the center of the consumer electronics manufacturing facility in Catalonia, which is 100 km down the coast from Barcelona. The aim of this new plant was to support the demand from OEMs for manufacture of electronic components. The plant will have core manufacturing services like PCB assembly and system integration. There will also be value added services like designing for manufacturability. The place where the plant was set up is an active business center and is also historical city having been an imperial city of the Roman Empire. The specific city of Tarragona was chosen as it is near to the large number of European customers.

The European Community is a significant growth market for EMS and there is a prediction that the OEMs in the area will gradually shift further to outsourcing their manufacturing activities. There is an estimate by a research group that OEMs in Western Europe will spend $21 billion on electronic manufacturing services in 2000, and that was a growth of 23% in one year. The company will now have two facilities - one in Tarragona and one in Valencia, which is 250 km away from Tarragona. The production is to be utilized by customers in networking, peripherals, industrial and consumer electronics and the list of customers include IBM, Philips, Ericsson and Gilat Satellite Networks Ltd. The plant in Valencia is now operating for nine years and is the primary source for the company's European Product Engineering.

This also has a design center with the capacity to help OEM customers speed up their products for introducing new products. The facility in Valencia will provide a wide range of integrated services which will help the product through the entire life-cycle. There will be assistance in basic design, and manufacturing of any component required for the product in electronics, circuit boards and cards; final assembly; distribution; after sale repairs and services. The unit will compete with other companies in Europe and Southeast Asia and this has compelled the company to reduce the client's time for entering the market, and also produce it at a competitive price. The unit at Valencia has a strong group for R&D which was started by IBM in 1992 and taken over by MSL in 1995. The company is expanding the production facilities very fast as during the same year it had started the third European operation in Galway, Ireland for the clients in that area. (MSL Expands in Spain)

Whereas there seems to be a clear potential for growth of the electronic industry in Spain, in the Czech Republic there seems to be a climate of corruption. This was due to the changes that took place in the political arena in 1989. There were a lot of changes in the area of corruption to new areas due to the economic and legal changes that took place and this has also led to large growths of corruption in some areas. Earlier corruption was high in the general services of the country as also sales, due to the shortage of goods, but with the change corruption has started in the areas of clerical and administrative services. There were the earlier practices f corruption based on the services, small gifts and small bribes and this has continued even today though the system has evolved during the communist rule in the country. This has become the norm of behavior and process of negotiation with the administrators at the state level.

The earlier image of the state administration was that of a repressive body by the general public, and the image has not changed much. This image of the state body led to a situation where the state was an enemy, and this led to the feelings that small thefts and misuse of public property was a sort of passive opposition against the state government. The process had continued for forty years during the regime, and the behavior had gradually become a social norm, and had become a part of the accepted behavior pattern at the administrative level in addition to being accepted at the citizen's level. The general view of the public of the state administration does not have much of prestige or value as an occupation. Comparatively, the income of the administration is quite low and the difference in incomes within the administration is low.

This has led to a situation where the jobs in the state administration do not carry much prestige, or attract intelligent people in the job market. This has made the total system extremely bureaucratic. Thus the officials in the administration do not belong to the middle class at any level. The reduction in competence of the staff has now led to a situation where the lower level staff are mostly unqualified and thus not able to take any decisions, or able to take personal responsibility for the decisions. This has made the system one in which the regular practice is to pass on the responsibility of taking decisions to higher levels within the administration. Thus there are delays in decision making, and this may be a difficulty in the new information technology industry. (Corruption and Anticorruption in the Czech Republic)

Entry strategy

For entering into the Spanish market, it is assumed that the product will be manufactured outside Spain and only a marketing organization is needed in Spain. This is generally done through a branch, and in practice, any organization with its head office situated abroad is treated as a branch in Spain. This organization will not be a legal entity and is controlled by the laws which are in force in the country where the organization has the head office, especially in relation of its deals with the third parties. To set up a branch, the requirement is to complete a public deed and enter the deed in the Commercial Register. The operation of the branch has to be within the declared objects of the branch which means that it has to operate within the purposes mentioned for the branch.

The branch has to prepare and submit the details of its current account with the head office every year to the authority concerned, General Directorate of Commercial Policy and Foreign Transactions. Apart from this, every branch has to have a permanent address and a fiscal representative in Spain. In general it may be said that the operations of a branch will follow the same requirements, procedural formalities, accounting procedures and initial costs as that of a subsidiary of the company. The tax position of a branch will be the same as that of a Spanish company, and it will also have similar rights and duties. Tax on the income obtained in Spain by non-resident companies may be changed through the application of International Treaties and Agreements.

These treaties will have precedence over the Spanish laws. Most countries have double tax treaties with Spain, and if income is obtained by companies in such countries, then the taxation position can be decided only after referring to the text of the treaty. The Spanish law however compels the non-residents to lodge a tax return on their entire wealth in Spain irrespective of the amount. The standard customs duties are to be paid by the importers when the goods are cleared by customs. In general, most of the duties on goods are calculated on the CIF value of the goods or on the value given in a similar invoice. (Doing Business in Spain)

In Czech Republic, most of the suppliers from foreign countries have conducted their business in Czech Republic by acquiring stakes in local companies as their way to the market, and others have set up their own companies. There is also use of local distributors and agents for marketing of equipment and distribution, though this method is seen to be successful mainly in totally self-contained equipment. In the case of equipment made for specific parties, or with equipment where there has to be provision for on-site maintenance, a partnership or joint venture with local companies may be preferred (Environment Market in the Czech Republic). There has been high competition in the Czech market as also the international market over the last few years, and this has led to an increase in the number of mergers and acquisitions (Code untangles corporate restructuring options). Thus it seems that the method of marketing in Spain may be simpler at least in the initial stages. There is also the risk to brand names in Czech Republic as has been seen earlier.

Product standardization

This is a question based more on the technicalities of the product and the expertise of the product designer may be sought in this regard.

Pricing

There are a lot of controls on the pricing that is allowed in Spain and the national regulator, Comision del Mercade de las Telecomunicaciones (CMT) had introduced massive cuts to the existing Telefonica charges for interconnection and wholesale ADSL charges. This action was the first by a European regulatory authority. The authority has set introductory service level agreements and released penalties for providing leased lines as the charges were reduced with effect from an earlier date. The decision was quite steep as the tariffs were reduced by an average of 26% and this was the highest reduction that had taken place till today. The CMT also gave a ruling that there has to be a difference of 43% between the wholesale and retail asynchronous digital subscriber or ADSL prices.

The company, Telefonica has appealed against all these decisions and is now saying that the reduction in the wholesale prices for ADSL will not take place, but the analysts say that they will not be able to do. The other operators in the same services and the end users of the services are being encouraged by these rate reductions, but they feel that the ending will be in a compromise, and the final cuts may not be as steep. Some other operators in the business feel that the CMT is an effective organization, but are slow in reacting, and the competence of these people in implementing these decisions is doubtful. They would not be able to implement the decisions. The decision taken by CMT on the matter of interconnection will bring Telefonica more in line with the levels set up by EU, and yet the lower levels might still not appeal to the customers in Spain as they would still feel it is too high.

The entire process of rate reduction was made when the country allowed Telefonica to offer ADSL services in retail. Earlier they could not sell the service directly, but had to sell through the ISP for Telefonica, called Terra, or the service provider called Telefonica Data. The change in method of operation would now lead to a situation where the difference between the wholesale and retail divisions of Telefonica will become very close to each other. In the meantime, Telefonica has now opened an exchange which will service both the segments. The orders for lines have been received till now from only comunitel, Jazztel, UNI2 and Retevision. The European Commission had recently sent a second warning regarding the re-balancing of tariffs to the Spanish government and they had to reply, and this was due to the fact that the government had not yet lifted the local call price ceilings, and this was stopping them from being determined by market forces. The sudden action by CMT may be related to the warnings of the commission. (Telefonica contests unbundling measures)

In terms of pricing, the controls in Czech Republic seem to be less than the regulation in Spain. Yet, the regulations in Spain seem mostly to be due to the decisions of the European Union, and Czech Republic will also become an active member of the same group, and thus probably have the same legal position shortly, if not now.

Distribution

Spain has been a free country for quite some time, and there are not very strict laws for control of new information technology. On the other hand there is strict control in Czech Republic and they consider crimes in information and the Internet a highly specific crime which is spreading rapidly. The crimes in this are now restricted mainly to hacking and mistreatment to works which are presently protected by copyright, including attempts to damage or misuse them. They have also recognized that Information Technology can be used for the interest of the offenders. In this are, there is concern about the misuse of IT in electronic retail and this has made the Internet a vast department store. For this purpose there is a thought of legislation regarding electronic commercial relations, and this may involve the certification of organizations involved in Internet.

There are already two bodies set up in this regard called the Criminological Institute and the Criminological and Technical Expertise Department concentrate on the technical aspects and are in a position to provide only expert support. To take care of the problem, there are now special offices which will be under the Czech Police's Criminal Police Service Directorate and Customs Administration department, who will conduct, manage and influence the security of IT. (Legislation on the protection of intellectual property rights) Will this equipment be also controlled by them? What will be their views?

Promotion

For this purpose there does not seem to be very great difference between the two countries, and this will have to be done through local distributors and agents. They will buy directly from the manufacturer, or the local branch or subsidiary company. They may also be invited to visit the manufacturing unit on an annual or semi-annual basis to keep themselves up-to-date with all advancements in these matters. In most of the areas, the electronics market in Czech Republic is mature, or will soon become mature (Electronics Market in the Czech Republic). Thus the method chosen may be similar and not much difference is expected.

Conclusion

The size of the market is not really known, and will be more determined by the use of Internet than any other factor. Due to the desire of Spanish people to have better connections with Europe, it is likely that they will have more desire for Internet, and the people in the Czech Republic have low knowledge of Internet and foreign languages. It is thus felt that Spain will be a better market for the product.