The Cultural Challenges of Doing Business Overseas

The Cultural Challenges of Doing Business Overseas

In today’s business world, many businesses face diverse cultural challenges when entering the global business market. Steve Kafka, an American of Czech origin and a franchisor for Chicago Style Pizza is no exception to the rule. Contemplating expanding his franchise into Czech Republic, Kafka will need to address the cultural differences between the U.S and the Czech Republic, any trade barriers that he may encounter with his business expansion, identifying Czech Republic comparative advantages and using these advantages to his benefits.

According to U.S. Commercial Service (2007), “The Czech retail sector is undergoing a transformation as rising income and changing preferences create new consumer habits. Czech entrepreneurs looking to take advantage of these trends are increasingly turning to franchising.” Furthermore, studies show that the majority of new businesses fail. But franchise businesses experience a success rate that is six times greater which leads to greater security and more profits. With a high success rates for franchise businesses in Czech, Kafka is in a good position to expand his pizza franchise. However, the cultural differences between the Czech Republic and the United States could present business risk factors if not addressed properly.

There are many similarities of business cultures between the U.S. and Czech Republic. Nevertheless, there are differences that Steve Kafka would need to take into consideration. Gorrill (2007) stated that “Indirect communication – one of the most underlying and inherent features of the Czech culture is their polite and humble approach to life. Czechs are both formal and indirect in their communication. This is also reflected in the distinction made between formal and informal language use. During business dealings a direct �no’ will often be replaced by an expression such as �it is difficult’ in order to avoid confrontation and maintain a certain level of politeness.” In business dealings, punctuality is an important aspect of Czech business culture and being more than five minutes late is considered inappropriate. It is also important to know that “when negotiating it is important to bear in mind that the country has a complex legal system and plenty of red tape regardless of efforts to modernize it.” (Kwintessential, 2007) which may prove to be a major risk factor if Kafka is up against deadlines filings of legal paperwork. However, to minimize this risk, Kafka could hire a consultant from Czech Republic who is familiar with the licensing and legalities of business proprietary ownership.

Comparative advantage is an economics theory which explains why it can be beneficial for two countries to trade, despite the fact that one of them may be able to produce each item more cheaply than the other. In other words, what is of critical importance in the viability of trade is not the absolute cost of production but rather the ratio between how easily the two countries can produce different goods. According to the theory of comparative advantage, the total output will be increased if countries engage in those activities for which their advantages over others are the largest or their disadvantages are the smallest. The availability of mechanical engineers and skilled labor at lower costs gives Czech Republic the comparative advantage over the United States in the auto manufacturing, machine tools and machinery industry which allows Czech to produce at a lower cost and creates higher output. Although Kafka would not benefit as much from the manufacturing industry, he would be able to take advantage of the low labor cost in Czech Republic.

To further evaluate the Czech Republic business environment, Kafka could apply Geert Hofstede’s Cultural Dimension Model to identify how values in the workplace are influenced by culture. In a side-by side comparison between the United States (US) and Czech Republic when analyzing the four primary cultural dimensions, on a scale of 0-100, US ranked high (91) in Individualism (IDV) which indicates a society with a more individualistic attitude and relatively loose bonds with others. The populace is more self-reliant and looks out for themselves and their close family members. In contrast to the opposite end of the spectrum indicating that individuals are integrated into strong, cohesive in-groups, often extended families which continue protecting them in exchange for unquestioning loyalty.” (ITIM, 2003) Czech estimated rank of 58, places them around the mid-point of the scale which would indicate no strong influence in high or low Individualism dimension. Both US and Czech Republic Masculinity dimension (MAS) scored relatively close with ratings of 62 and 57 respectively. ITIM (2003), further states “a high