Cultural Challenges of Doing Business Overseas: Steve

Cultural Challenges of Doing Business Overseas:

Steve Kafka, franchisor for Chicago Style Pizza

Steve Kafka, a proprietor of Chicago Style Pizza, a U.S.-based franchise, is attempting to capitalize upon his Czech heritage, and knowledge of Czech culture and language to expand into Prague and take advantage of a largely untapped pizza market in the region. However, it is critical that Steve does not forget that, despite his familiarity with Czech culture, he was born in the United States and must orient himself to the unique cultural worldview of the Czech nation

Major differences and incompatibilities between cultures and risk mitigation

Perhaps the most significant difference between the U.S. And Czech business culture is a historical one, namely the legacy of communist rule in the Czech Republic. "All commentators on Czech business culture focus on the difficulty of developing deep levels of trust within any business relationship" (Doing business in Czech Republic, 2010, World Business Culture). Corruption was rife during the Soviet era. Older employees may also be more used to a less focused and intensive approach to the workday, contrary to what is characteristic of private enterprise (Doing business in Czech Republic, 2010, World Business Culture).

One way to mitigate such risks is to focus on placing younger individuals, with some exposure to the U.S. educational system and U.S. businesses in managerial positions. These individuals would be open to Steve's view of business, yet still possess knowledge of local bureaucracy. Selecting Czech nationals to partner with who have entrepreneurial backgrounds also bodes well for success in Steve's business.

Despite these potential personnel selection difficulties, the Czech Republic also has many assets. Of the former Warsaw Pact nations, "the Czech Republic has one of the most developed and industrialized economies," dating back to the 19th century, boasts a highly-educated populace and well-maintained and developed infrastructure (Czech Republic, 2010, U.S. Department of State). "The country's strategic location in Europe, low-cost structure, and skilled workforce has attracted strong inflows of foreign direct investment (FDI). This investment is rapidly modernizing its industrial base and increasing productivity" (Czech Republic, 2010, U.S. Department of State).

Comparative advantages

A great comparative advantage in the Czech Republic is the relatively underdeveloped pizza market, in comparison to the U.S. In many areas of the U.S., there are high-quality independent pizzerias on every corner. Or, in areas of the nation without large Italian populations, chain pizzerias like Pizza Hut, Domino's and Pizzeria Uno dominate the marketplace. Steve could be a first-mover in the Czech market, and define the evolving Czech palate to crave his particular brand and style of pizza.

Hofstede's four primary dimensions

According to Geert Hofstede's four cultural dimensions, the contemporary Czech Republic rates fairly moderately on all major scales, comparable to the U.S., with a slightly higher level of uncertainty avoidance. On the Czech Republic's Power Distance Index (PDI) "the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally," the Czech Republic rated slightly lower than the U.S., meaning that overall there is a greater expectation of equality between managers and subordinates (Czech Republic, 2010, Geert Hofstede Cultural Dimensions). This may be due to the Czech Republic's moderately collectivist orientation on Hofstede's Individualism (IDV) scale, which measures the degree to which individuals are integrated into groups" (Czech Republic, 2010, Geert Hofstede Cultural Dimensions). While the Czech Republic is not as collectivist in orientation as China or Japan, compared with the U.S., it has a much higher degree of collectivism in its mentality than the United States. The U.S. is widely regarded as one of the most individualistic societies in the world.

These two factors, despite the proprietor Steve Pizza's familiarity with the language of the Czech Republic, could result in a managerial culture clash. Workers might be resistant to orders given to them in a very 'top down' fashion from a manager, who expects unquestioned obedience. Also, workers might expect more direction and oversight than is customarily given in U.S. businesses, as part of the Czech's more collectivist mentality. In terms of Hofstede's third critical factor, Masculinity (MAS) versus its opposite, femininity, or "the distribution of roles between the genders" and the relative gap between men's values and women's values, the Czech Republic is relatively moderate (Czech Republic, 2010, Geert Hofstede Cultural Dimensions). However, the Czech Republic has a much higher Uncertainty Avoidance Index (UAI) than the U.S., perhaps because of its relatively recent communist past, its stronger sense of collective nationalism, and relative lack of diversity, ethnically, in comparison to the U.S.: "Uncertainty avoiding cultures try to minimize the possibility of such situations by strict laws and rules, safety and security measures" (Czech Republic, 2010, Geert Hofstede Cultural Dimensions).

What kinds of trade barriers would Steve need to be aware of?

The Czech Republic is a member of the European Union, and thus no trade barriers unique to the Czech Republic exist that would be encountered with any other EU nation. Despite some cultural reservations, the Czech Republic has been one of the most successful nations in shaking off outdated economic patterns and was "the first post-communist country to receive an investment-grade credit rating by international credit institutions. Successive Czech governments have welcomed U.S. investment & #8230;Inflows of foreign direct investment in 2008 were roughly $10.73 billion" (Czech Republic, 2010, U.S. Department of State). Although corruption exists within the government, debt is relatively low, and banks are privatized.

The demand for pizza at different prices? Cost structure? Price and income elasticities?

A thorough market assessment would be required of the current pizza market in the Czech Republic would be required. Is pizza regarded a budget or a luxury treat? Is it eaten as a snack or at dinner? The relative range of current pizza pricing is a critical factor to keep in mind. Demand and price may be relatively inelastic, if there is a narrow price range amongst all pizzerias in the Czech Republic.