Cultural Issues a Company Faces when Emerging in a New Market 11
Cultural Issues a Company Faces when Emerging in a New Market 11
CULTURAL ISSUES A COMPANY FACES WHEN EMERGING IN A NEWMARKET
A company can develop a new product or emerge in a new market by using its ideas or those of others. However, there are several issues, such as cultural problems, that it can encounter during the entire process. Firms have to take cultural issues into consideration before deciding to enter into a new market. Some of cultural issues include religion, norms, customs, and language. When a company has adequate knowledge and information it needs, the process of emerging into a new market will be less painful.
The most important thing for a company is to consider the market it’s about to enter, once it begins the process of developing a business model and concept (Govindarajan and Ramamurti 2011). The key to a successful venture is taking time to understand the market, which means carrying market research to evaluate every aspect of the market including cultural issues.
The reason for this study is that firms always look to expand to new opportunities and markets, and for each new market that a firm establishes itself in, there is always a different culture that might sometimes generate different problems for the firm. This paper aims to research the cultural issues that companies face when emerging in the new market and how they solve the issues. This study is hence so important since it will create a guide to those firms planning to enter new markets. The guide will provide the best way possible on how to avoid or/and deal with cultural issues.
Overall aim Comment by Chi Maher: Overall aim missing
1.2 Objectives/Aims Comment by Chi Maher: You need 3 research Objectives
The objective of the research is to increase our understandings of the various cultural issues that most companies face when emerging in new markets.
1.3 Research Questions
· How do firms gain understanding and knowledge concerning the cultural issues of a new market?
· How do firms overcome these issues?
· What is the utmost efficient and effective technique to lessen risk relating to cultural issues in new markets?
Chapter 2: Literature Review
Culture is the knowledge and characteristics of a particular group of individuals encompassing religion, language, arts, cuisine, social habits, and music. According to Hofstede Geert “culture is the collective programming of the mind which distinguishes the members of one human group from another” (Hofstede 1991, p. 90). In general, culture is a way people do their things. The chief cultural issues that an organization must consider before entering a new market include religion, norms, customs, and language. Over the years, the changing landscape of technology has made it possible for people from different sides or regions of the planet to interact, especially through social networking sites. These interactions and information exchange have opened regions to foreign people making it possible for new organizations to move to such regions.
The most advantage that organizations have harnessed from these interactions is the ability to learn about the cultural norms of people from a particular region of interest. This way, the top management can collaborate with relevant people within the firm to develop and adapt business models and strategies with the ability to succeed in the targeted market segment (Logemann and Piekkari 2015, p.33). Importantly, it is essential for organizations to adopt a localization strategy, which incorporates religion, norms, customs, and language of the local people in the model and strategies. Ideally, the targeted people have to feel that they are part of the company, which would then make them to support the company. Therefore, it is mandatory for the new entrants in the market to initiate and actualize various corporate social responsibilities as well as adopting a localization strategy.
2.1 Culture Categories
One has to understand the diverse cornerstones of culture, to understand the various issues that firms face when entering new markets. Culture can be categorized into various categories for easy understanding. The sense of space and self is the first category. Self-identity and appreciation can be expressed differently in a different culture. For example, it is more okay to boast in some cultures, whereas people have a habit of being humble in other cultures (MacCormack et al. 1980). People are structured and formal in some cultures, whereas others are flexible and informal.
The other category of culture is body language and spoken language. Body language differs between different cultures. People speak different languages with different dialects in various parts of the world. Body language is somehow universal; however, signals and gestures have a different explanation in different cultures. For instance, most European culture prefers hugging as a sign of greeting while in some Asian nations, culture abhors body contact especially when it involves people of different gender. In particular, most nations where Islam is the dominant religion advises against shaking hands people of opposite gender. The differences in these practices imply that the ways of greeting also vary. For instance, Cambodians greet by one person touching their chest and bowing to the other person, who must be older than them or occupy a higher sociocultural class (Jensen 2017, p.137). On the other hand, people in many African nations prefer handshaking as compared to hugging or pecking. Therefore, the top management is responsible for understanding the practices pertinent to the targeted market and liaising with the relevant stakeholders to adopt a business model and strategy with high efficacy.
There are diverse feeding habits and diets in different cultures. For instance, many Americans and Europeans eat a lot of beef, which is unacceptable among Hindus. Jews and Muslims are not permitted to eat pork, whereas several Swedes have distinct harm for Christmas. The food generally varies from culture to culture, and the way food is served and eaten also differ. Food is eaten directly with bare hands in some cultures, while in other cultures, individuals use wooden sticks and many more. Comment by Chi Maher: Reference required
People have different norms and values in different cultures. In several parts of the world, individuals try to survive due to the absence of food and water, whereas individuals in other regions concentrate on upgrading their standards of livings through material possessions and better employment. Success is frequently measured in wealth in the United States, whereas in other regions such as Pacific Island, success is measured on the bases of how much an individual shares his/her wealth.
Attitude and beliefs of people are other significant factors of culture. This is an aspect of culture that is difficult to measure. People have different attitudes and cultures. Religion has the same effect on the attitudes of people, but a person interprets a message might be different from the other interpretation. Generally, message interpretations depend on attitudes, norms, and religion. Understanding this concept is imperative because the new market entrants must develop and implement promotional activities intended to introduce the products or services of the company to the customers. The only known way for an organization to enter a new market and mount a stiff competition with the existing players is when the potential customers in the market segment can comprehend the message. In this respect, it is advisable to use promotional methods and messages that would reach many people in the market and be understood. As long as the customers interpret the messages in the advertisements as intended by the organization, they would demand for the products and services, especially when they prove more superior and advantageous in comparison to the existing products. Comment by Chi Maher: Same as above Comment by Chi Maher: Sae as above
Apart from message interpretation, the top management must also understand the attitudes of the host people towards certain tendencies. For instance, environmental protection is one of the most crucial responsibilities of organizations when they enter a new market. This responsibility has crept to the top of the CSRs pile due to the heightened calls on the need to slow climate change. Different types of pollution undermine the quality of life of people, and therefore, it is necessary for firms to play critical roles in ensuring that their operations do not jeopardize lives of the host people. This is principally crucial in societies where people are much concerned with environmental protection. Comment by Chi Maher: Reference your work throughtout
Additionally, the adopted localization strategy must make people feel that they are part of the company. The human resources department must adopt a recruitment framework that hires local people. These people would help the company to understand the local market much better, thereby positioning it as a competitive player in the local market.
The competitiveness of the company would depend on its market share. Through recruiting the local people, the company would receive the support of people within the market segment, which would be instrumental in cementing the operations of the organization within the industry. Even so, the organization has to adopt the human resource department with the local market since the variables that influence job satisfaction, organizational commitment, and employee motivation varies across culture. Some studies have indicated that the failure of firms to align the human resource department with the cultural profile of the locals is one of the main reasons for the failure of organizations in foreign markets. Also, performance appraisals differ across cultures due to the underlying differences in the conflict resolution modalities and giving and receiving of feedback (Luo and Shenkar 2017, p.72). Therefore, the pinnacle management must align the practices of the human resource debarment with the cultural profile of the host region to raise the likelihood of success.
2.2 Deciding the Mode of Entry
A firm has to choose the means of entry when it decides to emerge into a new market. This decision is thought to be affected by the following aspects: external factors, internal factors, favorite mode characteristics, and so on. The most interesting factor in our study is the external factors because cultural issues belong to external factors that face a firm (Zhang et al. 2007). The socio-culture comprises of language, cultural characteristics, and education level, to name a few. The socio-cultural issues influence a choice of means of entry for a company because it can generate internal indecision in the business and by that, it will influence their choice. Perhaps, deciding on the best entry model is the hardest for an organization that wants to emerge in a new market (Azhar and Lin 2017, p.15). The people concerned with the development of business models and entry strategies must liaise with numerous stakeholders to position the company on the brink of success.
Importantly, conducting a PESTEL analysis would help reveal internal and external variables that are likely to determine the success of the firm. For instance, studies have indicated that the failure of the firm to understand the local legal and ethical issues is one of the underlying causes of company failure. Globally, the operations of firms are governed by the existing laws and ethical guidelines, which ensure that these operations do not undermine the rights of any stakeholder. Therefore, the apex leadership in a company intending to enter a new market must understand the local legal and ethical issues to develop a strategy that can foster the success of the firm.
Apart from the local legal and ethical issues, organizations must also understand the socio-cultural and economic variables of the targeted market segment. As pointed out earlier, adopting a localization strategy positions the company on the brink of success. Some of the elements within this strategy that a firm must consider include spending power of the targeted customers, the cultural norms, educational level of most people, and their overall attitudes. Normally, a society that has a high literacy percentage expects much from the entities. For instance, people from such communities would likely demand that organizations act by the laws of the land along with protecting environment. Failure of the organization to practice this would attract the anger of the locals, thereby shaking the continued operation of the firm.
Furthermore, the spending capacity of the targeted customers determines the type of pricing strategy adopted by the organization (Davcik and Sharma 2015, p. 770). There are various pricing strategies that firms can adopt when entering a new market segment. The adopted pricing strategy must incorporate the purchasing power of the targeted people along with the quality of the products or services. Some of the most popular pricing strategies that a firm can adopt when emerging in a new market are penetration and premium.
Ideally, the penetration strategy is adopted to assist the company in entering a new market and expanding its customer bases. In most cases, penetration pricing is lower than the existing market prices, which plays a crucial role in attracting and retaining customers. The major drawback of this strategy is that it leads to narrower profit margins and might cause the company to go under when the established companies also decide to lower their prices. Conversely, the premium pricing strategy generates the illusion of quality and exclusivity. In simple terms, those products or services offered at high prices generate the feeling that they are of high quality, thereby making people to increase their demand for them. However, this strategy should only be used when the potential customers in the market segment have a high purchasing power. Due to this condition, this strategy is mostly applied in societies where most of the targeted customers are within the middle or rich classes. Concisely, an organization emerging in a new market must utilize a localization strategy, which would also include a pricing strategy that matches the socio-economic and cultural variables of the potential customers.
2.3 Method of Exports
The products of a country are both manufactured in either the third country market or domestic market and then indirectly or directly exported to a new market or a new country. Export is the most common means for the initial entry of a company and is essential in evaluating the market growth. It is normally the distinctive way for firms to initiate entry to external markets, which changes towards foreign-based activities. The major types of export methods include cooperative exports, direct exports, and indirect exports.
Cooperative exports are when a company collaborates with other companies in exporting functions (Michaely 1977, P.50). Direct exports are when the firm itself carry out the exporting processes, and also the company is in direct connection with the intermediary. Indirect export, on the other hand, is when the firm indirectly carry out the exporting processes. As an alternative, a domestic corporation, for example, export house or trading company accomplish those activities. When entering a new market, the company must do all it can to attract and retain the potential customers. This can only be achieved by adopting a localization strategy, which focuses on empowering and motivating the community. Based on this requirement, a company emerging in a new market must utilize cooperative exports as a strategy to build and expand its market share. Importantly, the selected company must have an exceptional reputation in the market, thereby helping the new entrants to make good strides. The fact that the new entrant collaborates with the local existing company to export the produced products would auger well with the community. For most outsiders, this would be a perfect expression of the company in its bid to support the community. Therefore, the apex management in a company entering a new market must select the cooperative exportation strategy, which would appeal to both the emotions and logic of the potential customers, thereby promoting the growth of the company.
2.4 Economic Model Comment by Chi Maher: References required
There are different economic models established to evaluate how cultural issues affect the decision of a company to emerge in a new market. There are four main types of economic models used to tell a story about the performance of the economy of the targeted market. These models include simulation, visual, empirical, and mathematical. The models used in exploring the economy put in consideration the behaviour of the customers in the market. Visual models provide the pictures and charts that illustrate the performance of the economy. For instance, the line graphs could show the variation of a nation’s GDP over a given period. The main advantage of these models is that an individual can read and understand them with easy and within a short time. The decision-makers in an organization can then make the expansion decisions based on the graphical representation of the changes in the economy. A very popular visual representation of the economy focuses on the supply and demand curves in a nation or a region. Demand is based on the purchasing power of people, which depends on the socioeconomic variables within the society. Therefore, the visual models showing high demand would indicate that the socioeconomic variables in the society are attractive for business operations. This is the most popular model applied by business organizations to understand the performance of the economy before deciding to expand and venture.
2.4.1 PESTEL model
The PESTEL model categorizes six key types of the external environment that have an influence on a company. These factors include economic, social, political, environmental, technological, and legal factors. The PESTEL model is suitable for viewing the future effects of environmental aspects to the company. The socio-cultural factors are the most interesting aspect of the model to this study (Issa et al 2010). The sociocultural factors include income distribution, lifestyle changes, population demographics, attitudes to leisure and work, consumerism, education level, and social mobility. Moreover, the political variables have a profound influence on the business climate in a nation. For instance, a move by the national government to scale up taxes would likely lead to inflation. This might not be great for business operations. Therefore, decision-makers must explore the political variables existing in a region before deciding on entry. Environmental and legal issues must also be explored and adhered to when an organization enters a new market segment. As pointed out earlier, environmental protection has become a popular initiative for many organizations globally. In this respect, management must explore the legal policies regarding environment protect within the target region and adhere to the policies accordingly. Today, technology has become a cornerstone of many operations. Although an organization can import technology, it is also important to have an idea of how technology-developed a region is before entering the market. Comment by Chi Maher: Same as above
2.5 Marketing and Culture
Culture varies from one state to another. A company, therefore, has to strategize its marketing approach to fit the values and principles of a particular country. Culture entails individuals’ beliefs, attitudes, and values, what works in a particular state may not work in another. Culture plays a crucial role for a firm when it comes to understanding consumer behaviour, therefore, culture influences customer’s consumption at the end of the day (Deshpande and Webster 1989). It is important for firms to carry thorough marketing research to know how a particular aspect works in an external market, to assist them in selecting the perfect promotional mix that is suitable for the culture of a particular country (Webster 1995, p.10). A company needs to design the market mix: price, product, people, and promotion to fit the culture of a particular country.
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