Understanding cultural differences is critical to global business.

Globalization has ensured that international borders are heavily relaxed so large and profitable domestic firms from one nation can pursue business interests in other nations without compromising domestic business interests. Several large multinational firms conduct business in several nations and this has become normality in today’s world. It should be noted that large market share of the respective market and large profits are usually strong motives for large firms to pursue business in other nations.

Culture is a complex, multidimensional concept that is crucial to conducting global business. It is a learned, shared, interrelated set of principals that bind members of a certain society. These principals, beliefs, symbols and so on are often embedded into the fibre of that area and amongst certain people, so you could suggest that business must be pragmatic and adopt a polycentric approach in order to fit in as opposed to trying to dictate or impose itself on that culture, especially during the preliminaries of entering a new market. Regardless of firm size, experience, or product or service, cultural implications have a huge impact on longevity and reception to a new brand and failure to understand will almost certainly lead to an exit.

TESCO is the largest supermarket in the UK and they had to pull out of the US market due to “disappointing” performance levels. From 2007 to 2013 TESCO had operated under the brand name of Fresh & Easy. They decided to close some 199 stores across the US. This was also the case for Wal Mart, whose attempts to penetrate the German market ended woefully back in 2006. No matter the size of the firm, or profit levels, a concise and accurate understanding of the cultural differences of the market one wishes to enter is fundamental when conducting global business. TESCO and Wal Mart’s failure to recognise this has led to their respective exits.

McDonalds understand the importance of serving your hosts.

Wal Mart is the largest supermarket in the US, when they wanted to expand into the UK they acquired the well-established firm ASDA. ASDA is still one of the largest supermarkets in the UK and business has been a moderate success. However, Wal Mart’s attempts to enter the German market proved that their myopic and frankly arrogant approach demonstrates that large profits in one market do not always translate to another market. Despite huge levels of revenue and profit, global business cannot function if one domestic firm tries to impose its values onto another culture. It is simply not compatible. Even though Wal Mart has stores in Argentina, Brazil, Mexico, China, Japan, Canada and Puerto Rico, their failure to break into the Europe’s largest economy will have damaged morale amongst senior members of their board.

Acquisitions provide several benefits and the ASDA case proves this, but When Wal Mart tried the same approach in Germany it impeded rather than aided their business. They purchased two second-tier stores, Interspar and Wertkauf. Both of these stores were mainly located in poorer areas and were geographically dispersed, it made business far from easy.

They arrived in Germany in 1997 and established firms such as Lidl, Metro and Aldi already posed a threat, but their board members assumed that their high profits would be sufficient and they could simply expand and take their competitors market share, consumers were loyal to their competitors however. They also tried to import many American traits into the German market and it was not understood. An example of this was 24/7 and Sunday shopping, although ASDA was the first to adopt the 24/7 model, culturally, the UK and the US are extremely similar, so the UK’s acceptance of this came as no surprise, in Germany however it was not the case. It was tremendously unpopular and highlighted a waste in resources.

Culturally German consumers prefer to bag their own goods, a simple study of behavioural traits prior to entering the market would have identified this, but their insistence on bagging their customer’s goods had an adverse effect, often putting people off their stores. Also, when Wal Mart managers insisted that their staff should smile at the customer again this put off many customers. And again, simple preliminary market research would have alerted them to this. According to Peng (2009) they left the German market with just 2% of the overall market share.

Wal Mart also hired an American to head their operations in Germany. Speaking English was a requirement and it damaged morale amongst senior members of the workforce. Productivity suffered as a direct result of the low morale.

Blockbuster Videos also ventured to foreign markets, they entered the Japanese market in the early 1990s and hired several Japanese senior managers to oversee the transition of the new venture. This enabled business to be cohesive and allowed their American counterparts to learn about the new market, Wal Mart’s approach was clearly wrong, one of several mistakes they made and highlights the need for a true understanding of cultural differences.

The TESCO led venture ended in failure for the UK giant

Despite having monopoly power in the UK TESCO could not gain any significant market share in the largest single market in the world.

According to BBC, Ajay Bhalla, professor of global innovation management at Cass Business School, said that at the root of Tesco’s US problems was a failure to understand that the US retail landscape is different from the UK’s.

“The falling star of Tesco in the US is a harsh reminder that scale [economies of scale] is not the recipe for sustainable value creation. For years, Tesco managers paid attention to perfecting the mix of supplier driven cost efficiencies with low prices.

Tesco’s exit from the US is a reminder for managers of the dangers of going blindly for scale and cost leaders, the wheels of which are difficult to reverse if you need to change course to becoming a retailer known for first-class customer experience.”

Understanding and appreciating cultural differences is critical to conducting global business. Without a sound understanding of the new market any firm, regardless of size, product or experience will find it almost impossible to conduct business in that market, hence knowing how deal with potential cultural barriers will alleviate several problems and ensure business can go on.

Read of the week

Hello world. This is another great piece from Guardian journalist David Conn. I wrote a piece some time ago highlighting some of the benefits of the opposing models of football ownership. It’s certainly worth reading.

http://www.guardian.co.uk/football/blog/2013/may/22/bundesliga-premier-league-champions-league

Is Justice Reinvestment a viable solution to the UK Prison Crisis? Part 2

In part 2 of my special look at the penal system in the UK I shall analyse more aspects of JR, arguments against JR and where the government can go from from here. If you missed part 1, here is is.

Prisons are also disproportionality represented with people from deprived backgrounds as Cavadino and Dignan highlight,

“In short, prison inmates are disproportionately likely to be drawn from disadvantaged, indeed multiply disadvantaged, sections of the community” (2007:197)

Cavadino and Dignan rightly suggest that the vast majority of prisoners are from socially deprived areas. This is perhaps the biggest indication yet that JR is required in the UK because JR looks for funds to go to areas with societal problems. Rather than using tax revenue to build and service institutions that are not only failing to provide the rehabilitation services required, they are also increasing the discontent amongst prisoners and having very little impact on criminal activity.

Reoffending, overcrowding and a general misallocation of resources appear to be the underling problems that is undermining the current penal system in the UK. Not only does the current austerity programme compound the problem further, it highlights the need for radical reform. This will ensure that there is a long-run reduction in both incarceration and spending on prisons. Moreover, the reduction in spending would adhere to the current government’s ethos of reduced fiscal expenditure as well as correcting societal problems. What is clear is the fact that the current system cannot continue to adopt the same inefficient methods.

JR would however present a radical change to the penal system and could be too ambitious or too unrealistic. In this nation, that is somewhat risk adverse, it would take a courageous and tenacious government to implement this ambitious project. Will a government really go ahead with it? I’m not too sure. Firstly, due to the scope of the project; implementing what could be viewed as a significant overhaul of an already highly bureaucratic system may require many years of political discussion, that will not only assess the validity of the project, but also the cost, timing (it would take to implement) and several other factors that require a calculated and measured approach, to a system that is already at a crisis point. Thus JR may provide a suitable long-term solution, but people may not be prepared to allow the system to settle.

The nature of criminality itself also requires action straight away and the public may not be too convinced about a scheme that allocates funds to areas of high criminality, one could even suggest that criminality is being somewhat ‘rewarded.’ This procedure could aggravate tensions in society and lead to higher social discontent, as opposed to higher societal integration, leading to further division and possible exacerbation of the problems at the heart of the criminal activity. Furthermore, the lack of conclusive empirical evidence does suggest that JR is a triumphant theory and at its infancy stages in the United States does appear to work, but contrasting attitudes, distinct legal systems and so on does highlight that it is not a ‘one size fits all’ solution and the current penal crisis may require both a realistic short and long-term resolution and JR appears only to work as a viable long-term solution, due to the nature of many of the proposals.

It is also difficult to suggest that politicians would be prepared to relinquish significant influence over criminals into local government. The electorate usually views a government that ‘boasts’ about being tough on crime as ‘strong’ and ‘decisive’ and the zero-tolerance attitude may gain significant political gain for those who want political power. Because of the nature of JR and its long-term approach, it does depend on the government’s attitude towards tacking not only the penal system, but also criminality in general; therefore, unless the government were prepared to sacrifice short-term gain in popularity, there does not seem to be any short-term political ‘point-scoring’ by implementing JR in the UK.

Not only will the lack of ‘political point scoring’ affect politician’s attitudes towards full implementation of JR, the British Crime Survey identified that different areas are generally associated with higher risks.

“Living in an area classified as ‘hard pressed’ (predominantly low-income families, residents in council estates, people living in high-rise buildings) or ‘urban prosperity’ (prosperous professionals, young urban professionals and students living in town and city areas) gives you a higher risk of criminal damage to your home than living elsewhere. It is also well established that burglary rates in the 88 most deprived areas are higher than average.” (Allen and Stern 2007)

Demographic differences may lead to further misallocation of resources, allocating some funds to a particular area may solve that particular problem, but linking that problem directly to criminal activity may prove difficult. The resulting ambiguity could waste further resources and not actually tackle the problem. Furthermore, the public may not approve of tax revenue being allocated to certain areas that do not directly benefit them. A prison built with taxes generated from the public is a tangible asset, but tax revenues being utilised in local communities do not have the same effect, people may want to actually see their result as opposed to being told what it is doing without having palpable evidence that it is actually working.

Having said that, JR still seems to integrate all the essential characteristics that a true reforming legislation should contain. By looking towards the root of the problem, it automatically attempts to solve the greater issue and confronting the problem at its cause, it also does not appear to waste so much public money, something that Phillips (in Fox and Albertson) highlights.

“If you decide to lock up one man for a minimum term of 30 years, you are investing £1 million or more in punishing him.” (Phillips 2007:6)  

The opportunity cost of imprisonment is clear, Phillips goes onto state that that £1 million could be used in other areas in society. With JR, £1 million could be invested in a range of societal programmes, greater communal initiatives, more funding towards group homes and so on. Programmes actually designed to curb criminal activity, to encourage greater societal cohesion and educate future generations against criminal activities.

Therefore, if the public needs convincing of an alternative to imprisonment, then JR provides an alternative, it should be seriously considered as the long-term solution to the prison conundrum in the UK. Because JR grants local government greater autonomy with regards to released prisoners and the societies they affect, this micro control creates a realistic chance of circumventing the negativity associated with re-offending. Local governments have a much greater idea where investment is required and so on, it will also allow society to benefit as a result. In the long-run, criminality and more specifically, understanding why certain individuals fail or choose a life that leads onto criminality can be understood and thus reduced significantly.

As Albertson and Fox highlighted, public opinion may be shifting towards alternatives to prison, if this is the case, the public may be more inclined to listen to Ken Clarke’s proposals because they seem to share many of the ideas that are linked with JR. Despite calls from former Home Secretary Michael Howard not to reform and remain tough on crime, attitudes may be starting to shift towards long-term alternatives to prison.

Read of the Week

This is an excellent piece relating prostitution and the public sector cuts. This blog is intended to highlight how significant economics and economic decision making is and how it affects every aspect of society. Thus, no part of society is exempt.

http://blogs.independent.co.uk/2013/05/01/prostitutes-and-the-recession-how-david-cameron%E2%80%99s-cuts-are-affecting-british-women/