The Challenges of Doing Business Overseas

Introduction
Steve Kafka, an American of Czech origin and a franchisor 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 independance 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/s05020.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

Environmental Analysis

Introduction
The cyclic nature of the business cycle is clearly demonstrated by the defense contracting industry. The industry is at its peak when republicans are in control and in a trough when democrats are in control. There are other factors that affect the defense contracting industry such as military conflict, the state of the labor market, and technological turnover. This paper will analyze the labor market and the technology turnover variables for the last five years relative to the information technology segment of the defense contracting industry. It will provide insight as to the challenges and opportunities that exist for the operating environment of the defense contracting industry.

Key Macroeconomic Variables
There are very few major defense contracting companies and many smaller, supporting companies. Lockheed Martin, Boeing, Northrup Gruman, and Raytheon are some of the major defense contracting companies that compete for defense contracts. Some of the key macroeconomic variables that affect all these companies are the policies reflected by the controlling political party, military conflict involving the United States, unemployment rates, the education and skill levels of the available labor force, and technology turnover.

Both political parties have innate policies regarding the defense of the United States. The democratic party feels resources would be better utilized in areas other than defense and therefore attempt to cut the budget for defense when they are in control. The republican party, on the other hand, feels national defense is a critical need for the nation and attempt to raise the defense budget when they are in control. The companies in the defense contracting industry must closely monitor the political landscape of the nation and try to forecast which party will win elections. If our nation is involved in military conflict defense spending is increased and more money is available to the companies in the industry and demand for their products raise. The defense contracting industry employs skills from all sections of the labor spectrum. The information technology segment of the labor force is limited and competition for those skills is heavy. When the industry is in a trough of its business cycle it is hard for it to compete for highly skilled engineers it needs to produce its products. Furthermore once companies do employ highly skilled workers at the peak of its cycle it is equally hard to maintain those workers as the cycle moves downward toward the trough. Companies must analyze the need for technology improvement regarding the benefit versus cost. In the defense contracting industry this analysis is even more critical. Usually defense budgets are not flexible enough to keep up with the latest technology and the contracts the defense offers are usually long term, greater than five years, so the contracting industry must analyze the state of technology and provide the best equipment available.

Labor and Technology
Taking a closer look at the labor and technology variables will provide better insight to the challenges and opportunities for the defense contracting industry. According to Country Watch the United States general unemployment rates for the years of 2001 through 2005 are 4.7%, 5.8%, 6.0%, 5.5%, and 5.1%. And according the Bureau of Labor Statistics the unemployment rates for the information industry for the same years are between 3% and 3.5%. This indicates a very low amount of available, highly skilled workers for the defense contracting industry and because this industry depends on the national defense budget it is difficult to provide a comparative wage to attract these workers. The difficulty level also changes as the political party in control changes. Because of republican control of the congress and the current military conflicts the national spending on defense has risen between 2001 through 2005, however, the democratic party took control of the congress in the last election so the expectation is that national spending will decrease in the coming years. The following chart depicts the employment rates in the general and information sectors compared to defense spending.

Technological advances in the information sector has grown at a rapid rate. A new generation of integrated circuits is introduced approximately every 18 months along with a cost increase. It is impossible to continuously upgrade information equipment as rapidly as new equipment becomes available. It is even more critical to plan technology turnover in the defense contracting industry. The budget limitations in this industry along with relatively long contract time-frames enforces a technology planning process so that products produces are not outdated before they are deployed to customers. The following chart shows the costs of technology upgrades compared to defense spending.

As the chart shows the cost to upgrade equipment rises each year. The challenge for the industry is to find a point at which technology will support the requirements of the customer and plan for future upgrades.

Challenges and Opportunities
The challenge for the defense contracting industry regarding employment is recruiting highly skilled workers capable of producing highly complex information technology products, retaining these workers once recruited, and planning for the future budgetary constraints imposed by the changing political climate. The opportunities in this area is the ability to provide highly skilled workers producing a highly complex product. The labor force employed in this industry is highly competent and motivated to provide the highest quality products for the defense industry.

The challenge for the industry regarding technology turnover is defining a point at which the equipment meets the customer's requirements while staying within the limited budget constraints inhierant in defense spending. Another challenges is planning for future technology turnover and incorporating this turnover into future budgets. The opportunities in this area is the ability to quickly adapt to budgetary constraints and implementing a complex, high quality product regardless of the constraints. All defense contracting companies strive to provide the highest quality products allowable within the constraints of their budget.

Conclusion
The defense contracting industry must to analyze general macroeconomic variables, but it must monitor even more closely the variables pertaining to the political environment of the United States. It must plan for changes in its labor force depending on projected defense spending which cycles depending the the political party in control of congress. Planning for its labor force also involves monitoring of the general labor force and the available highly skilled workers it must compete with the other technology industries. Planning for advances in technology is a critical analysis for the defense contracting industry. Because contracts are relatively long compared to advances in technology, the industry must carefully plan for technology turnover.

References
Macroeconomic Data, Unemployment Rate. Retrieved May 15, 2007 from Country Watch. http://www.countrywatch.com.ezproxy.apollolibrary.com/cw_topic.aspx?type=data&vcountry=182&disc=1&tableid=1

Us Department of Labor, Industry at a Glance: Information. Retrieved May 15, 2007 from The Bureau of Labor Statistics. http://stats.bls.gov/iag/information.htm

Oligopolistic Market Structure

Maximizing profits through the stages of market structures is challenging and different techniques are used in each stage. During the monopoly stage Quasar's profits are maximized using pricing, advertising and production improvements. Because there is no competition prices are set at the point where the demand is highest relative to the average total costs. Although setting the price lower to gain more demand may position the company for a higher market share in the future there are other techniques for gaining market share in future stages. Advertising budgets are set so that consumers are informed about Quasar's product and production improvements are implemented to reduce the costs associated with producing the product. During the Oligopoly stage profits are maximized by setting the price at a point where the company can maintain market share. The company must also predict the competition's reaction to it's price change. As more and more companies move into the market during the monopolistic competition stage, the company's market share decreases. To continue to maximize profits the company must strongly differentiate its product. Quasar's best strategy would be to introduce a new brand into the market. This will reduce the unused capacity in the manufacturing plant and improve demand for both products. During the perfect competition stage Quasar should maximize profits by continuously improving processes. This will reduce costs, which is the main strategy used in this stage of the market structures.

An oligopoly market structure is dominated by a few large producers of a homogeneous or differentiated product. Because of their fewness, oligopolists have considerable control over their prices, but each must consider the possible reaction of rivals to its own pricing, output, and advertising decisions. Although the most common oligopolies are national, the beer and automobile industries are examples, there can be regional or local oligopolies. The retail automobile parts industry is one such local oligopoly. In the Colorado Springs area there are few retail automobile parts companies, Pep Boys, AutoZone, Checker, and Advanced Auto Parts, that control the market. Although all of these companies sell products to consumers and repair shops, Pep Boys tries to differentiate itself by marketing to the Do-It-Yourself consumer. Because of the mutual interdependence between the companies Pep Boys must use methods other than pricing stratagies to maximize revenues. One way they've done this is to reduce labor costs. In 1996 Pep Boys implemented changes in the business plan to reduce labor requirements across the enterprise. Pep Boys implemented a new slotting plan for the distribution centers, modeling the new plan on retail stores pegboard hooks. They categorized products by family groups and created store shipments consisting of reusable totes packed with aisle-specific, family groups. This reduced the store-stocking time by 30%, from 18 hours to 12 hours per delivery. In 2004 Pep Boys implemented a voice-directed system in its distribution centers. This system allowed the warehouse workers to replace handheld devices and printed instruction sheets with headsets that are connected to belt-worn computers. This frees up the worker's hands, keeps his eyes on the job, and speeds up the time it takes him to complete each task. This new system gained Pep Boys a 12 percent increase in productivity and a 50 percent increase in accuracy. By finding creative ways to reduce costs and improve productivity, Pep Boys is able to compete in local markets while still maximizing revenue.

"Pep boys revs up its distribution: the focus of any slotting program is to reduce employee travel time and increase productivity. How that is accomplished will vary widely.(Slotting)." Material Handling Management 62.3 (March 2007): 38(5). InfoTrac OneFile. Thomson Gale. University of Phoenix. 1 May. 2007
<http://find.galegroup.com/ips/infomark.do?&contentSet=IAC-Documents&amp;type=retrieve&tabID=T003&prodId=IPS&docId=A161600874&source=gale&srcprod=ITOF&userGroupName=uphoenix&version=1.0>.

Sowinski, Lara L. "Talk about getting more out of your warehouse! Voice-directed technology is taking warehouses to new levels of productivity while improving the bottom line for shippers' supply chains." World Trade 18.8 (August 2005): 54(3). InfoTrac OneFile. Thomson Gale. University of Phoenix. 1 May. 2007
<http://find.galegroup.com/ips/infomark.do?&contentSet=IAC-Documents&amp;type=retrieve&tabID=T003&prodId=IPS&docId=A135338665&source=gale&srcprod=ITOF&userGroupName=uphoenix&version=1.0>.

Income Elasticity of Demand

Income elasticity of demand measures the degree to which consumers respond to a change in their incomes by buying more or less of a particular good. The formula to determine the coefficient of income elasticity of demand is Ei = % change in quantity demanded / % change in income. Normal goods are defined as those goods whose income-elasticity coefficient is positive. As income rises these goods are in more demand. Inferior goods are those goods whose income-elasticity coefficient is negative. The demand for these goods are lower as income rises. The study of income elasticity coefficients help explain the expansion and contraction of industries in the United States. As incomes in the United States rise, industries producing products for which demand is quite income-elastic have expanded their outputs. Automobile, housing, and restaurant industries have shown strong growth outputs because, on average, the total income in the economy has grown 2 to 3 percent annually. When recessions occur and people's incomes decline, grocery stores fare relatively better than stores selling electronic equipment. Engel's law is an observation stating that, with a given set of tastes and preferences, as income rises, the proportion of income spent on food falls, even if actual expenditure on food rises. In other words, the income elasticity of demand of food is less than 1. For normal goods, the Engel curve has a positive slope. That is, as income increases, the quantity demanded increases. For inferior goods, the Engel curve has a negative slope. That means that as the consumer has more income, they will stop buying the inferior goods because they are able to purchase better goods.
Although food is considered a normal good, restaurant meals are considered a luxury good and the income elasticity of demand for food is less than 1, the demand for restaurant meals is much more elastic.

References
McConnell, C.R., & Brue, S.L. (2004). Economics: Principles, Problems, and Policies. New York: The McGraw-Hill Companies.
Income elasticity of demand. Retrieved April 25, 2007 from http://en.wikipedia.org/wiki/Income_elasticity_of_demand
Engel's Law. Retrieved April 25, 2007 from http://en.wikipedia.org/wiki/Engel%27s_law