The Cultural Challenges of Doing Business Overseas

The Cultural Challenges of Doing Business Overseas

Introduction

Steve Kafka, an American of Czech origin and a franchiser of Chicago Style Pizza, has decided to expand his business and open a franchise in Prague, Czech Republic. Before venturing into the global business sector, Steve needs to conduct an in-depth analysis in order to become familiar with the Czech culture. This analysis will present opportunities and risks that Steve will need to achieve and overcome so his end-state goal of expanding his Chicago Style Pizza business can be realized. This paper will investigate and discuss the major cultural differences and incompatibilities between the United States and the Czech Republic defining the apparent risks, and how to mitigate those risks that may develop from these differences. Discussion will then turn to the comparative advantages within the Czech culture, how using Hofstede’s four primary business decisions will help Steve evaluate the business environment, how trade barriers may impact business, and analyze the demand for pizza and how to assess its cost structure.

Cultural and Economic Overview

Czech Republic

The cultural differences between the United States and Czech Republic stem from their unique historical evolution across centuries, from their geographical position, specific traditions, surrounding peoples and cultures, structure of population, and traditional and economic ties with other countries. Over the last 15 years, the Czech Republic has transitioned from a centralist socialist economy to a democratic capitalistic economy. In May 2004, the Czech Republic joined the European Union, which has allowed the Czech economy to obtain a larger market share resulting in greater monetary prosperity. A free market economy has helped the Czech Republic become one of the most prosperous countries to exit from the socialist regime (CountryWatch, 2008).

Situation Analysis

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

The major challenge that Steve needs to overcome is learning how to adapt to the Czech culture effectively. Adapting to different cultures requires an understanding of cultural diversity, perceptions, stereotypes, and values (Hodgetts, Luthans & Doh, 2006). The culture in the Czech Republic emphasizes conformity and cooperation while the U.S. values freedom and independence as both individuals and a nation. To show respect people in the Czech Republic shake hands firmly and state the person’s last name. Czech people are persistent when stating opinions; they are very obedient and cooperative, value traditions and are disrespected if eye contact is not kept constant when spoken too. Americans generally use a firm grip and smile when conducting a handshake. American people are generally honest and straightforward, they are risk takers who value creation, entrepreneurship, and invention, and do not consider someone being disrespectful if eye contact is not maintained throughout a conversation.

Not knowing or understanding these differences between the cultures will create major risks for Steve’s business. The basic beliefs and behaviors of the workers could have an impact on the success of the business if not managed properly. Therefore, in order to mitigate these risks, Steve needs to seek advice and assistance from his friends and family who live in the Czech Republic to acquire knowledge on the general work experience, social behaviors, differences in technology, and business-government relations. This information will help Steve to understand the difference of opinions and values that will need to be used when managing his business. Therefore, understanding the culture and using his Czech cultural background to the best of his ability, Steve can mitigate these risks, and become a successful entrepreneur.

Comparative Advantages in the Czech Republic

Steve can benefit from several comparative advantages by opening a pizzeria in the Czech Republic. Compared with the U.S., the amount of capital needed to develop a business in the Czech Republic is relatively low. The Czech Republic located in the center of Europe offers an attractive environment for foreign investors by offering tax breaks to encourage the opening of new businesses in Prague. Low cost buildings, low wages for highly skilled labor, and access to the rest of the European Union market contribute to the attractiveness of this investment (CultureGrams, 2008). Steve also has an advantage because the U.S. dollar has a higher value than the Czech Koruny, which will help cover his expenses such as overhead cost and advertising needed to promote his business. Investing in a foreign market can