Potential Opportunities and Challenges when Expanding Businesses into Foreign Markets - Essay Example

Potential Opportunities and Challenges when Expanding Businesses into Foreign Markets Abstract Venturing into a foreign market requires any company to understand the salient cultural differences that it is going to experience. Different regions have different cultures and those differences have the potential of affecting businesses. This is the reason why it is important to analyse the cultural differences expected in a foreign market and defines the effective strategies for addressing the differences. In the case of a European business venturing into China, which is a collectivist society, and that has stringent cultural values that define business practices the company should take time to analyse the cultural situations of this Asian countries. Brazil and Nigeria do not present a big difference form the Chinese society, as they are also collectivist societies. This paper explores the opportunities and challenges in each of the target market according to the framework defined by Hofstede. The views of other theorists such as Hall are also in-cooperated. Potential Opportunities Impossible Challenges in Expanding Business Internationally 1.0 Introduction Expanding businesses to international markets requires a close analysis of the differences in culture that will need to be addressed if the business is to succeed in the new market. Several theorists have sought to identify the cultural aspects that have the potential of affecting businesses. One of the famous theorists named of Hofstede highlighted five dimensions of the cultural framework that are likely to determine the organizational structure, leadership style and management styles in a new market (Agozino & Anyanike 2007, p. 3). In the case of a UK business, firmly established and operating in accordance with the UK culture seeks to expand to Nigeria, Brazil, and China as the target markets then several considerations of the cultural differences are critically significant. It is evident from Tesco’s management that it had to strategize in order to venture into China and Brazil. Tesco would do the same if it intended to venture in Nigeria in the future. This case is true from a close analysis of Tesco’s experience as it ventured into China and Brazil. Although the three markets above present an impressive market for Tesco, The cultures in the three target markets present a high level of diversity and therefore each target market needs to be analysed individually. Understanding the opportunities and challenges will help in determining the type of communication style to be adopted in each of the target markets. This paper will analyse the cultural differences evident in the three target markets while comparing the available literature with Tesco’s experience while venturing into China and Brazil. 2.0 Theoretical Frameworks 2.1 Potential opportunities and challenges in China The current growth of China in economy has propelled it to be a leader in Asia. This is the reason why many UK companies and U.S are strategizing on how to exploit the evident business opportunities in the Chinese market (Alon 2003, p. 89). Therefore, companies are designing ventures into the Chinese market. However, as many management theorists have highlighted, gaining entry into a new market presents multiple challenges that the company will need to address. According to Hofstede, it is critical for a company to carry out an extensive review of the differences in culture between the two countries involved and highlight which differences will serve as opportunities, and which ones are salient challenges. According to the five dimensions described by Hofstede, China presents very intriguing scores. One of the dimensions considered is that of individualisms versus collectivism. There is a salient difference of the scores of individualism in the UK and those of China. The UK culture focuses on individualism, making it one of the central defining aspects. According to Hofstede’s scores, the UK culture exhibits a score of almost 100 in this dimension. On the other hand, China scores only 15 in individualism. The low score is because of the strong belief in collectivism in the whole of Asia, and specifically in China. Although UK businesses expanding into China will need to adjust to the collectivist perspective, this aspect presents certain opportunities and benefits to the business. In this society, individuals exhibit a high level of commitment to groups that they are affiliated to (Al-Qirim 2006, p. 87). In the context of work and business, it means that the Chinese people are likely to exhibit a high level of commitment to teamwork. In any organization, teamwork is of critical significance. Therefore, businesses venturing into China are likely to enjoy a higher performance brought about by successful teamwork (Beekun, Stedham, & Yamamura 2003, p. 279). Notably, each individual is likely to exhibit a high loyalty level of the organization, as the Chinese people have an evident preference for nurturing relationships. Moreover, the collectivist aspect may present additional benefits because employees are likely to work for the organization for a long period, as they are afraid of straining their employee-employer relationships. On a different perspective, customer loyalty is expected in this society. An additional dimension considered by Hofstede while designing his cultural framework was the power/ distance aspect. The scores in this dimension serve to highlight whether a high level of inequality exists in the society or whether the society has made steps towards equality. China’s score on the power distance dimension is 80, a value which is relatively high. In comparison to the UK, whereby a low score of 30 that is registered, it becomes evident that the Chinese society presents a high level of inequalities. One intriguing factor about the Chinese society is the fact that the people act with tolerance to the inequalities that exist. Many people living in the Chinese society accept that inequalities are a critical determinant of the society. With such a high power distance, it means that a UK business expanding in China will have to rely on a hierarchical leadership style that defines the positions of every individual in the organization. Moreover, Chinese employees are likely to foster unwarranted competition within the organization for any new responsibilities. An additional benefit of this is that decision-making is easier as the leaders of the organization have the sole responsibility of making decisions. Leaders need to develop a communication style that serves to convey messages down the hierarchy in the organization. The third dimension described by Hofstede is the masculinity index. The emerging high score in china and the masculinity index implies that the growth of the society is defined by rigorous competition, the struggle for achievement and success. This translates to the fact that, hiring employees and offering them promotions depends on their pertinent skills and competences. This view is similar to that existing in the UK, a factor that makes businesses expanding in China more feasible. Scores on this index reveal the level of gender differentiation between men and women. In the recent past, China had made steps towards the empowerment of women, and this has served to increase the China scores on the masculinity index (Gao 2013, p. 45). The interpretation of such scores, highlights that both women and men have the chance of holding different positions in an organization. Unlike the view exhibited by many people in the past that china promoted more opportunities for men, a business expanding in China at the moment from the UK will continue to enjoy a diverse workforce that brings in the capacity of both men and women (Gesteland 2012, p. 99). In the fourth dimension, denoted as uncertainty avoidance, China has a low score of 32 highlighting that the society lacks the stringent rules that control the behaviour. However, the strong cultural values place individuals under obligations to obey the existing law because failure to do that often leads to disgrace. This is an opportunity for businesses establishing themselves in china because the culture sets up serves to control the people’s behaviour (Block & Collins 2013, p. 90). Scores of china in the fifth dimension, which is the long-term orientation, are highly intriguing. Unlike the UK, which registered scores in the twenties; China records a score of 114. Such a high score in china presents a salient mismatch a factor that derails business deals in china. In the UK culture, business deals are defined and signed within a short period (Ogadah, Onwe, & Eworo 2005, p.234). However, in China, the same deals may take a longer period. This forms a significant challenge that businesses expanding into this region must be willing to cope with (Falola 2001, p. 98). This is because deals with suppliers and partners may be delayed, in the case of the employees; they may have no hussy to get tasks done because of the long-term orientation perspective. The emergence of multiple telecommunication modes has transformed communication in the western world. In the UK for example, virtual communication is an acceptable mode in both the normal life and in business. Many UK businesses have adopted a virtual communication in a bid to save time that would be spent in face-to-face meeting or communication mode. Despite the influence of the internet and advancing technology on the Chinese society, face-to-face communication has remained an integral part in China (Fabbi 2013, p.123). Therefore, a business expanding in China will have to adapt to the new challenges associated with face-to-face communication, the logistics of holding meetings and additional time spend to resolve issues. In the case of employer-employee relationship, it is critical to rely on face-to-face communication to establish an effective working relationship (Wang, Xin, & Goodfellow 2003, p. 44). This means that leaders and subordinates must communicate face to face. In cases whereby virtual communication is used for a Chinese employee, he or she may consider it an insult and feel undignified by the employer (Wang, Xin & Goodfellow 2003, p. 13). The collectivist nature of the Chinese society spells out certain business practices that are different from those evident in the UK. Therefore, a business seeking to expand in the UK may be compelled to make readjustments in accordance with collectivism. Collectivism defines the ethical stances held by different organizations expanding into China. This further determines the code of ethics that is adopted by the organization in China (Deshpandé & Farley 2007, p. 68). The code of ethics is critical in ensuring that an effective employer-employee relationship is nurtured (Country Conditions 2013, p. 42). This may pose a challenge to a UK business venturing into China because of the individualized nature of businesses in the UK. An additional challenge of venturing into China is a language barrier. The cultural set up of China places emphasis on the use of Chinese even in business forums with foreign countries (Lam 2009, p. 76). Therefore, any company interested in exploiting the evident opportunities in China will require its staff to learn Chinese language. Learning Chinese does not solve the communication barrier that exists between the two cultures. This is because the people involved in setting up the business in China will require understanding the contextual use of different Chinese phrases. According to an additional theorist's name Hall, the Chinese society is categorized among the high context societies, while the UK is a low context society. According to Hall, many western countries fall under the low context societies because they prefer to speak in an explicit manner with most of the statements having literal meanings. However, high context societies prefer to use vague language in the initial phases of the conversation while an explicit approach is reserved for phases when the relationship has become stronger. This is very critical because managers of a UK business in China will need to understand the guidelines of communication in a high context society (Block & Collins 2013, p. 278). This means that they will address Chines employees in a different way they address the employees in the UK. Such understanding will form a critical start in building effective working relationships with the employees (Wood & de Paula 2008, p. 194). Moreover, the fact that Chinese employees view themselves as a constituent of a certain group means that managers will need to address them as such. This view is common because of the collectivist nature of the Chinese society (Tomalin & Nicks 2007, p. 12). 2.2 Opportunities and challenges of venturing into Brazil Brazil is a leading economy in Latin America a factor that has motivated many European and American companies to venture into its market. In the case of a European company intending to venture into Brazil, it is critical to understand the differences brought about by culture. According to the five dimensions described by Hofstede, it is possible to highlight the opportunities and challenges that the Brazilian market presents (Tsai et al 2013, p. 175). Brazil has a high score in the power distance dimension a factor that translates to accepted social inequalities. Therefore, organizations venturing into Brazil must adopt the hierarchical organizational structure because people are aware of the different power positions that must exist in the society. Notably, Brazil is a collectivist society as it costs 38 on individualism (Dahles & Wels 2002, p. 89). Similar to China, Brazil presents certain challenges on opportunities because of its collectivist nature. Managers of companies moving into Brazil will need to learn how to develop relationships with employees viewing them as part of the group (Vanhonacker & Pan 1997, p. 77). On the other hand, the collectivist view presents an opportunity for the European companies, as employees are likely to be loyal to the organization into which they belong (Herrington 2008, p. 56). Brazil scores an intermediate value in the case of masculinity. This means that there is a balance between masculinity and femininity, therefore, both men and women have an almost equal chance of securing employment in the organization (Williams & Youssef 2013, p. 55). There is also a balance between the assertive nature of a masculine society and the subordinating nature of a feminine society. A European company venturing into Brazil must be willing to adapt to this. On the uncertainty avoidance index, Brazil has a high score of 76 (Bueno 2012, p. 87). The score only means that it has multiple laws and rules in place in a bid to minimize any occurrence of uncertainties. This is different from the European culture, which has a lower uncertainty avoidance score (Nigeria 2013, p. 65). Therefore, European companies venturing into Brazil must be willing to comply with the existing laws and rules (Chee, West, & Palgrave Connect (Online service) 2007, p. 65). According to the theorist Hall, Brazil is a high context society a factor that places emphasis on the need for managers to adopt a different communication style. Just like China, European managers working in Brazil will require to avoid the explicit use of language, but rather consider a more cautious way of language use. Moreover, communication in this society requires a different approach whereby, attentive listening is expected. The language barrier is also a reality in Brazil and European cultures venturing into the Brazil market must be able to address it (Kenna & Lacy 2004, p. 54). 2.3 Opportunities and challenges of Expanding a Business into Nigeria Nigeria is a West-African country that presents a high diversity in its culture. Therefore, a business that wants to venture into its market must be willing to conform to the cultural differences. According to Hofstede’s dimensions, Nigeria scores 74 in the power distance index. Being a high power distance society, there are existing and accepted inequalities in its culture (Saunders 2010, p. 78). This implies that, managers and subordinates are likely to have a high dependence because of the power distance differences (Guenther 2004, p. 41). Therefore, a hierarchical organizational structure exists whereby top leaders make decisions and communicate to the other employees down the hierarchy. Moreover, Nigeria is a collectivist society that scores 15 on the individualism index (Spralls III, Okonkwo, & Akan 2011, p. 45). This means that, the interest of the society must receive a priority unlike in the European culture whereby individual interests receive the first priority. This affects the employer-employee relationship because the employee exhibits the collectivist perspective and views himself or herself as an art of the group. This makes it a challenge for managers from Europe to view employees as a group rather than as individuals (Branco & Williams 2008, p. 32). On the masculinity index, Nigeria scores only 20, a factor that highlights the passive nature of feminine culture. Therefore, men are likely to have more job responsibilities and exhibit their assertive nature. A European business will need to consider when expanding to Nigeria. Nigeria score 50 on the uncertainty avoidance index showing that the Nigerian culture makes the efforts of resisting change (Nigeria 2014, p. 9). For a business gaining entry into the Nigerian market, it should be willing to address any resistance from Nigerian employees to organizational culture change (Steinmetz 2007, p. 56). There is also an evident difference in the perception of time, according to the African culture and the European culture, whereas the European cultures view time as a valuable aspect, Africans have an entirely different mentality, and they do not believe in the value of future time because its events are yet to unfold (Williams 2001, p. 53). In Africa, people consider them as flexible and people are accorded priority over time (Bourne 2008, p. 54). The fact that Nigeria has a unique mode of dressing is an aspect that a European business must consider. Although a suit is the formal mode of dressing, some Nigerian men still exhibit the desire for their African attires when attending business meetings (Limbs & Fort 2000, p. 89). In Nigeria, women have fewer responsibilities in the workplace, a factor that is very different from the European culture (Nigeria 2011, p. 14). Moreover, because of the existing power distance, top leaders in organizations make decisions while the subordinates only comply (Ardichvili et al 2012, p. 420). 3.0 Discussion of Practical Relevant Scenario The opportunities and challenges described above are typical of Tesco Plc., a European company that has ventured into the Chinese market. The company has been in China for some time and it has faced challenges related to cultural differences. Managers of the company working in china reveal that understanding the collective Chinese culture and its effect on business has been of critical importance. The western business culture differs immensely from Tesco’s experience in china. Tesco has faced the compulsion of localizing its business in China so that it can conform to the Chinese business practices (Fabbi 2013, p. 90). The legal framework governing the business of operations in china is different from that in Western countries, especially Europe and it took time for the company to establish itself is marketed. The collectivist culture of china and the fact that it is a high contest society have made Tesco’s interactions with Chinese employees differently. In this market, Tesco has established a hierarchical organizational structure and the managers exhibit a lot of efforts in a bid to build effective employee-employer relationship with Chinese employees. This is because the Chinese employees value relationships as highlighted above. Despite this challenge, Tesco enjoys the commitment exhibited by her Chinese employees and the thriving market for their products. The experience of Tesco in China conforms to Hofstede’s cultural framework. Evidently, Tesco faced the compulsion of carrying out a rigorous analysis of the market prior to exploring the Chinese market. Tesco’s Venture in Brazil Prior to Tesco’s venture in the Brazilian market, the British grocer carried out an intensive analysis of the opportunities and challenges evident in this market. Tesco was cautious enough and took time before exploiting the evident opportunities. With an evident difference in culture, Tesco had to understand how it would deal with the challenges that would emerge from such differences. As mentioned above, Brazil is also a collectivist society and high context society, according to Hall’s description (Bueno 2012, p.56). This greatly affects the type of working relationships that develop with Brazilian workers. Tesco also had to adapt to a hierarchical structure because of Brazil’s scores on the power distance index. Although Brazil is a leading economy in Latin America, presented an impressive market for Tesco’s products the company had to strategize on how to address the evident cultural differences. Just as in the case of China, Tesco’s experience in Brazil conforms to the available literature that describes the effect of cultural differences on business. The time taken by Tesco before venturing into this market is an evident proof that venturing into foreign markets needs a rigorous analysis of all the opportunities and challenges. Tesco’s Possible Venture in Nigeria After considering the cultural differences between the European culture and the Nigerian culture, it becomes obvious that if Tesco ever decides to venture into the Nigerian market, it would have to strategize on how to localize its business operations in the African country. Nigerian is a collectivist culture with strongly embedded cultural values that affect the establishment of a foreign investment in the country (Agozino & Anyanike 2007, p. 89). As the scores above on Hofstede framework reveal, Tesco would need effective strategies to exploit the business opportunities in Nigeria. It would need to adopt a hierarchical organizational structure and adjust to giving men more priorities in the workplace because of Nigerian high scores on masculinity. Therefore, it becomes evident that the available literature on venturing into foreign markets is contextually right. 4.0 Conclusion As highlighted above, venturing into the three target markets, namely China, Brazil, and Nigeria present numerous challenges as well as opportunities for the European company whose headquarters are in London. Tesco the company of Choice in this paper has had to adapt to the cultural set up of China and Brazil in a bid to ensure that its business ventures are successful. From the analysis of the successful venture of Tesco in the two markets, it becomes evident that the British grocer would have to take similar steps of analysing the existing cultural differences before venturing into Nigeria. The opportunities present in these markets, which are leading economies in their regions serve to attract foreign investors such as Tesco. 5.0 Recommendations From the literature highlighted above, compared to Tesco’s experience, it is obvious that cultural differences have the potential to influence a business. Therefore, companies need to carry out a rigorous analysis of the cultural framework of any targeted market. Therefore, the following recommendations have been suggested. The company should strategize on how to combat the cultural challenges. The company should strategize on how to exploit the opportunities in the target market. Learning the relevant language of each country is of critical importance. 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