Doing business in another country requires a lot of effort. Not only should the companies be ready for the large entry expenditures. There are also a large number of cultural differences that the companies should keep in mind in order to integrate into the new market environment successfully. The CW Model defines 7 key cultural dimensions that may have a great influence on the company’s performance abroad. They include hierarchy/egalitarianism, group focus, relationships, communication styles, time orientation, change tolerance, and motivation/work-life balance (Solomon & Schell, 2009).
The people who work for the multinational companies in the managerial positions should be able to recognize the cultural differences in order to reach the desired business goals. First and foremost, there should be a clear understanding of how the decisions are made in a foreign country, what level of freedom and personal initiative the people prefer to have, how much equality between the people there is, what level of formality there is, etc. (Solomon & Schell, 2009). If a company fails to answer such questions, its business activities are likely to be ineffective. An American company that is usually egalitarian and informal will make a mistake if it applies the same methods of work overseas, because in many countries conservative approaches to management are still popular. In such countries the people believe that at different level of hierarchy they will have the different rights. In such cultures subordinates do not want to be responsible for the decision making, so the managers will have to act decisively (Solomon & Schell, 2009).
The next important dimension is the group focus. In different countries people work effectively either in the teams or individually. For example in the USA, the people prefer to express their individuality and strive for individual achievement. When they work in the teams, they have individual roles. On the contrary in most Asian countries the group work is of much greater importance. The people usually work in groups, but still there is plenty of opportunities for expressing the individual thoughts. Therefore sometimes decision making may require more time than in the countries with the individual focus. Foreign companies should realize that the group focus might maximize the ideas and help to reach the best solutions (Solomon & Schell, 2009).
Thirdly, the companies should pay much attention to the relationships that will help to set up trust and closer ties with the employees, partners and other stakeholders. In the transactional cultures (the USA, Canada, Sweden, etc.) the people are expected to be honest at every stage of communication and do the job they are expected to. On the contrary, in some countries, including Asian countries, a lot of effort should be spent on building up the personal relationship at first. In the future the reliable relationships may be very beneficial, because they are stable over time. Therefore at the entry stage the foreign companies should spend a lot of time on the meetings and other social events that will help to present a company and find the local partners (Solomon & Schell, 2009).
Next, using different communication styles is also vital for the successful performance of the company overseas. Cross-cultural communication may be a challenge if the two cultures differ greatly from one another due to the different hierarchical structures of societies and approaches to avoiding the conflict (Solomon & Schell, 2009). For example, in Germany and some Nordic countries the people are very direct. On the contrary, in some countries of Asia and Southeast Asia the western people may get confused because of the differences in the communication styles. It is sometimes necessary to provide more information and pay attention to the non-verbal communication so that there was mutual understanding with the foreign partners or employees. Moreover, in some countries informal communication may be as important as setting up the reliable relationships (Solomon & Schell, 2009).
Time orientation also may help the company to realistically set up the business objectives. A lot of companies find it difficult to look for the reliable partners that would adhere to the deadlines. In the countries where the people do not feel that they control the time, they pay greater attention to the relationships than to the schedules. As the result they may often change their plans. However, not following the deadlines does not mean that a partner is unprofessional (Solomon & Schell, 2009).
One more dimension that may cause problems overseas is the change tolerance which means willingness to take risks and change. In the cultures where the change tolerance is high, the companies may provide more freedom to the employees so that they could share their ideas. On the contrary in the countries with the low change tolerance, the companies are not flexible and have very strict organizational structures that do not allow taking decisions quickly (Solomon & Schell, 2009, p. 190). The foreign managers should be ready to provide some clear instructions and explain why the changes are needed. In addition, overall low change tolerance in a country may lead to the problems when the new products are launched, because the people are not used to the quick changes. So the companies should not expect the quick response from the partners, employees and customers. They also have to be specific and be able to prove why the presented changes are important (Solomon & Schell, 2009, p. 198).
Finally, approaches to motivation and work-life balance may also vary in the different cultures. In some countries like Japan or the USA people have to work a lot, but for the majority of the countries the right work-life balance is of greater importance (Solomon & Schell, 2009, p. 207-208). In such countries there are strict social policies that protect the rights of the workers, so the companies may find it difficult to get used to the foreign legal environment. Moreover, in some countries promotion and other rewards will not help to motivate the employees. Job satisfaction will help to increase the effectiveness of the employees, so the work should not interfere with the employees’ personal lives (Solomon & Schell, 2009, p. 213).
Having a global mindset based on the dimensions described above will help the company to avoid the failures if it would like to enter the foreign markets. There is always a risk of stereotyping, so the companies should dedicate more time to learning the new market in which they want to operate. For example, The Home Depot failed to do that when it entered the Chinese market 10 years ago (Burkitt, 2012). Due to many cultural differences and the lack of information about the local consumers The Home Depot’s stores were not able to generate high sales. Hiring the local regional managers would help to improve the marketing and sales strategies, because they know the consumers much better. However, after 10 years of working in China, The Home Depot decided to focus on the specialty stores in order to satisfy specific preferences of the Chinese consumers. Moreover, the company decided to cooperate with the Chinese company in order to launch online operations (Burkitt, 2012).
Developing a global mindset is not a simple thing especially if the company is going to enter an exotic country with absolutely different culture. Some of the cultural peculiarities may be hidden, and the company will know about them only when it starts operating abroad. The Home Depot has a very successful business model in the USA. However, in China this business model simply cannot work, because the local people do not like the do-it-yourself format and because of the cheap labor they may hire the workers who would do the heavy work. Communicating with the local companies and consultants might have helped The Home Depot to avoid the strategic mistakes. At the same time, China remains to be an important country for the American company, because there are many production facilities. Some associates that worked in the Home Depot’s stores will start working in the sourcing centers, but the majority of the associates will be made redundant (Burkitt, 2012).
KFC has been successful in China thanks to the business strategy that helped to localize the offered products, extend the menu, and attract a large number of Chinese customers into its outlets in the small and midsize cities. Since 1987, KFC was able to open more than 3,000 outlets and has a goal of increasing the number of outlets up to 15,000 (Bell & Shellman, 2015, p.3). The company has been present in China for 25 years and now it is facing some serious business related problems that will have to be resolved in the short term in order not to lose the competition against the local cafes and restaurants. In total there are 3 million cafes in China and the majority of them are the local cafes (Waldmeir, 2015).
The American brand KFC faced a lot of challenges when it entered the Chinese market in 1987. Fortunately, the company chose the correct strategy and tried to understand the cultural differences before making the necessary changes. As the result, the company hired ethnic Chinese people to be KFC’s top managers in China and developed the competitive advantages that do not correspond to the American business model. Nowadays KFC offers an extended menu that includes different American and Chinese meals. The outlets are much larger than in the USA. By means of such a format the company wants to provide enough space for the families and the large groups. There were also some other minor adjustments of the business activities related to the logistics, expansion strategies, and ownership rights. In terms of the customer service, KFC organizes the trainings for the Chinese staff, so that they could understand what is expected from them (Bell & Shellman, 2011, p.4-5). As the result, when the customers come to KFC, they may feel that it is an American cafe that has been flexible enough to integrate some qualities of the Chinese culture into the services.
Understanding of the Chinese culture and lifestyles might have had the most important role in the KFC’s successful expansion. China used to be a very reserved country with the conservative society, but starting from the 1990s more and more companies began to open their outlets in China. All foreign companies have similar interests: they enter the largest market in the world in terms of the population and offer the local people the new types of products and services and as the result get very high revenues. One of the most difficult challenges for the foreign companies is usually to decide to what degree to divert from the typical business model that is applied in the home country (Bell & Shellman, 2011, p.6). Unlike The Home Depot in the previous case, KFC was able to make a lot of changes based on the customers’ preferences and become one of the most competitive American companies that is interested in the long-term presence in China.
However, now KFC is facing a lot of problems in China. It used to be a popular place for dining-out, but nowadays the middle class people prefer the other cafes and restaurants. Moreover, the food safety issues scare the customers away (Waldmeir, 2015). Nevertheless, the company expects that the consuming class will double by 2020 and therefore there will be plenty of opportunities for the KFC to expand further. Some specialists say that the KFCs should have even more freedom in China in order to compete with the local restaurants. Torsten Stocker from AT Kearney refers to “localization 2.0” strategy that may help KFC stay competitive (Waldmeir, 2015).
In conclusion, KFC’s success story in China shows how vulnerable the foreign markets can be. KFC has to be innovative all the time in order to compete against the local companies and attract more customers. From the very start KFC decided to localize the menu and introduce the other changes that were concerned with the Chinese culture. However, the recent problems have shown that despite the correct long-term strategy there are still many risks, because the company cannot integrate fully and will always be perceived as a foreign company. In China, there are vast societal transformations caused by the strong performance of the national economy. So KFC will have to rethink its business strategy in order to keep up with the times.
Lack of the global mindset may be observed in the Disney’s entry strategy in France. Disney opened a theme park in Japan and applied a similar approach in France. However, the American company made a lot of mistakes related to the cultural differences and it had to put a lot of effort into overcoming the financial problems that followed the opening of one of the largest theme parks in the world.
First and foremost, Disney failed to realize that the French top managers could have prepared the launch of the Euro Disneyland much better, because they knew the peculiarities of the local business environment. When the problems started to pile up, Disney finally hired the French manager Philippe Bourguignon. He interacted successfully with the French government, financial institutions and employees that were dissatisfied with the way they were treated by the American top managers. In-depth interviews with the French stakeholders showed that there was very much tension with the American managers (Zeno, 2010, p. 545). Recommendations made by the partners were never taken seriously and therefore some standardized offerings were introduced. Now Disney is much more open-minded and sometimes their global mindset leads to the scandals in the EU where all member states must be treated equally. In 2015, Disneyland Paris allegedly charged more money from the German and British tourists by limiting their access to the cheap deals that were available for the French and Belgian tourists (Barker, 2015). France will have to address the problem of geo-blocking and order the Disney to stop applying the price discrimination (Barker, 2015)
Back to the entry stage, Disney was not aware of the differences in the lifestyles and behaviors between the American and European people. When the park was opened, attendance was never higher than 11 million tourists a year. Too much reliance on the parent Disney brand caused the low attendance (Zeno, 2010, 545). In addition, there were not enough places for having lunch and parking, alcohol was prohibited, and the French visitors hated to waste their time standing in the long lines. These and some financial problems had a very negative impact on the Disney’s activity in Europe and the company spent several years to overcome the difficulties.
Entering a new market has many hidden risks that cannot be predicted. Sometimes the companies may easily succeed or unexpectedly fail. In Japan, Disney was very successful and the business plan for the Euro Disneyland was based on the Japanese experience. In Tokyo, Disneyland attracts millions of visitors though it is a copycat of the Disney parks in the USA. Localization at the entry stage was very insignificant and if the attendance declines, the new rides are usually introduced (Zeno, 2010, p. 544). The same thing can be said about the company’s entry strategy in Hong Kong. The majority of the attractions are based on the American themes, but there are some minor details that help to gain the loyalty of the Chinese visitors.
In conclusion, the companies may reduce the negative impact of the possible risks if they consult with the companies or specialists that know the local markets well. The companies should develop a global mindset in order to adjust their management and marketing strategies. Disney had different experiences around the world and the minor changes were needed in order to reach the business objectives set up by the American top managers. Another issue to be addressed is how much authority should be given to the local top managers. On one side, they know the market environment and have the valuable relationships. On the other side, the multinational companies should care about their brand image and the native top managers seem to be more reliable and trusted than the foreign managers. Therefore, when the companies want to enter the foreign markets there are many complicated issues that have to be resolved in advance. Sometimes the mistakes are unavoidable. In such cases the companies should be ready to take prompt actions and show their willingness to work in the new environment respecting the local culture, habits and traditions.
References
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