Choice of a Country
As CarryMorre is a United Kingdom business, it is subject to certain privileges as well as restrictions. Within the context of Brexit, the UK has withdrawn its membership in the European Union, as well as its participation in the Customs Union. Whereas earlier, there were no tariffs or barriers between the UK and other EU members, now, British exporters have to make customs declarations. At the same time, there are no tariffs imposed, which means the absence of taxes on the goods from Britain. The reason for this is the EU-UK Trade and Cooperation Agreement (TCA), which supplanted Britain’s membership in the Customs Union. As a result, trading with the EU members is more profitable for the UK than with countries, which have no free trade agreements with the UK.
The proposed country for CarryMore to expand into is the Republic of Croatia. It is located in Southeast Europe, neighboring Slovenia, Hungary, Serbia, Bosnia and Herzegovina, and Montenegro. Croatia is a member state of the European Union, the EU Customs Union. Not participating in Eurozone, Croatia retains its national currency – the kuna. 1 UK pound sterling equals to approximately 8.5 Croatian kunas. The International Monetary Fund classifies Croatia as a developing country. At the same time, it is a high-income economy with a high Human Development Index. The country’s environment is receptive toward foreign investors, emphasizing equal rights for domestic and foreign enterprises. Overall, Croatia is a region with favorable conditions for market entry.
There are several reasons for preferring Croatia as the first trading partner for CarryMore. First, having a substantial advantage in the currency exchange rate, the company can safely use its revenues to cover any expenses in Croatia. Second, Croatia is a member state of the EU, which removes the necessity of paying taxes for delivering goods into the country due to TCA regulations. Third, Croatia has a long shoreline and mountainous terrain, which provide the opportunity for leisure and hiking. Fourth, the county needs basic travel commodities, as it exports mainly oil, machinery, and chemicals. In essence, Croatia is a good choice for export because of the local demand for CarryMore’s goods and the high purchasing power of the population.
Market Entry Strategy for Croatia
Getting and maintaining a foothold in the Croatian market requires establishing a wholly-owned subsidiary. There are several reasons for using this type of strategy. First, Croatia needs foreign direct investment (FDI) to develop. According to the study by Cho et al. (2017), emerging economies rely on FDI to transition to a developed economy. This is directly related to Croatia, which actively invites foreign multinational companies to invest in it. Basically, corporations analyze local demand, establish their subsidiaries and transfer them the technology that is necessary for satisfying local customers (Cho et al., 2017). Croatian government understands this and openly encourages the presence of foreign companies.
Second, establishing a wholly-owned enterprise gives the parent company greater control over local operations compared to other strategies. The first years of working in a foreign market are filled with risks. Although other types of internationalization provide a stronger hedge against unfavorable scenarios, the return of investment is also lower. Moreover, CarryMorre is a family-run business, which determines certain management specifics. For instance, Sestu and Majocchi (2020) report that “family firms are more likely to choose WOSs over JVs in order to maintain control over the business and to guarantee independence from external parties” (p. 212). Subsequently, the best course of action for CarryMore is to choose a wholly-owned enterprise over a joint venture.
It has already been established that rucksacks are in demand in Croatia because of the shoreline and the mountainous terrain. This means that CarryMorre should combine its merchandise with local sightseeing. The advertising campaign should accentuate how Croatian citizens will benefit from purchasing CarryMore’s backpacks. The materials used in the manufacturing of CarryMore’s goods allow people to put many objects of different sizes into the compartment. At the same time, the majority of the weight is centered on the waist rather than the back. This way, tourists can cover long distances without worrying about stretching their spine.
Regarding the competition, CarryMorre can appeal to the customers’ sense of dependency on the rented equipment. In Croatia, many people do not buy camping equipment but rather rent it at campsites (Rogerson and Rogerson, 2020). The company can point to the convenience of always having backpacks ready for any venture. Moreover, it is likely that local supply will be cheaper than CarryMore’s merchandise. Nevertheless, purchase attention depends not only on price. The more convinced the customers will be of the quality of the companies’ rucksacks, the more willing they are to buy the goods. Alternatively, CarryMore can make periodic discounts, further incentivizing the customers to choose this store.
Force-Field Analysis
At this point, there are two drivers of change in relation to entering Croatia. The first is the country’s overall welcoming attitude towards foreign direct investments. By creating the legal framework, which equates to domestic and foreign businesses, Croatia has incentivized foreign businesses to establish subsidiaries in the country. The preferred business language is English, which facilitates communication for British entrepreneurs (Department for International Trade, n.d.). Having a UK subsidiary in its market promotes technological development due to the transition of technology from the parent company. Therefore, Croatian positive predisposition toward FDI is a factor necessitating change.
The second driver for change is the lack of business variety. The more diverse the supply is, the more satisfied the customers’ needs will be. The majority of backpacks produced in Croatia are light-weighted and made of polyester (Croatian Backpacks, n.d.). They are more suitable for commuting in cities and traveling in urban areas. At the same time, Croatia has substantial territories for long-term traveling. Local rucksacks are not designed to meet these requirements. Barrymore can solve this problem by selling more sophisticated and universal backpacks, which would be adequate for hiking. As a result, the absence of sufficient market supply creates the need for change.
As for the factors against resisting the change, the first problem is the fear of insufficient competitiveness of domestic manufacturers. Duspara et al. (2017) note that numerous foreign businesses much better handle competition than Croatia. The list of more competitive countries includes but is not limited to Switzerland, Netherlands, Germany, Sweden, and the UK. Businesses in these countries use more innovations in manufacturing than Croatian entities do. The result is that any time a company enters the Croatian market, chances are that domestic enterprises will not be able to provide viable competition. The fear of weakening national businesses may constitute resistance to change.
The other factor stems from the risks of operating a business in Croatia. Department for International Trade warns investors about the deficiencies of the Croatian legal system (n.d.). Particularly, there is a considerable lack of transparency in the private sector. This poses two problems for business owners in Croatia. First, taxation can unpredictably hamper legal entities, especially those of foreign origin. Second, court hearings concerning legal disputes are often protracted, thus causing companies to avoid resorting to the judicial system. Finally, there are allegations of corruption in the Croatian legal system, which may frighten foreign investors. Combined together, the problems of the legal framework and the corruption alert comprise another factor resisting change.
Overall, taking all factors into consideration, it should be noted that entering the Croatian market is the correct decision. First, like any developing economy, Croatia needs FDI and more advanced technology. Second, the appearance of a foreign manufacturer of backpacks will certainly invigorate the competition and add variety to the market. Third, even though there are internal concerns about the insufficient competitiveness of domestic businesses, Croatia’s need for investments outweighs such fears. Finally, the negative reputation of corruption repels many foreign businesses, making it easier for CarryMorre to compete. At this point, it should be evident that factors precipitating change are stronger than those resisting it, thus, giving credibility to the idea of CarryMore entering the Croatian market.
Cultural Difference
Although the United Kingdom and Croatia are both European nations, they have distinct cultures. The British represent the classic Western society, with traditional values and ideals. Croatian culture is less distinct since it represents a combination of foreign influences. It draws from both the Western world and the eastern European traditions. Unlike the UK, which has been sovereign for hundreds of years, Croatia has been independent for only thirty years. Cross-cultural communication in business is influenced by the history of the home countries. Taken together, it should be evident that there is a striking fundamental contrast between these cultures.
Most strongly, the difference is expressed in Hofstede’s dimension of individualism vs. collectivism. He believed that the degree of interdependence is one of the most fundamental traits in society. Depending on how well people’s sense of self was articulated, Hofstede differentiated between individualistic and collectivist cultures. Collectivist cultures are typically dominated by group thinking and suppression of individuality. In contrast, individualistic cultures are entirely focused on praising the sense of self. This dimension permeates almost every sphere of intrapersonal relationships, as the end goal of any activity is either personal fulfillment or the achievement of common interest.
According to Hofstede’s theory, Croatia is a collectivist nation. It may be the result of the seventy years spent within a socialist state with a communist ideology. Another explanation might be that historically, Croatians learned to prioritize submission to dominating personalities over personal expression. Either way, the overall cultural narrative of Croatia is that commitment to groups is paramount (What about Croatia? n.d.). From early childhood, the concept of loyalty is cultivated in people. It is present in all group entities, such as family, friendship, business, and work environment. As a result, any decisions regarding the fate of Croatian employees or partners have to be taken while considering their in-groups.
An entirely different mindset resides in Britain, which is highly individualistic. The idea of personality is so ingrained in public perception that it is only surpassed by the United States and Australia (What about the UK?, n.d.). Most and foremost, the British value personal independence and foster this quality in families. Children are taught self-reliance and the necessity to find their own unique purpose. For this reason, business relations are driven by selfish interests and can conflict with more collectivist Croatian thinking. The contradiction may manifest in the form of disagreement between CarryMore’s owners and the subsidiary’s management regarding the conduct of business in the country.
People Management Activity
At this point, CarryMore faces the challenging task of expanding into a foreign country with a different culture. The company has to decide whether the subsidiary management will be fully Croatian or British. It is advisable to make the majority of the executive officers Croatian, who will be supervised by the British ones (Verbeke & Yuan, 2020). This composition presupposes working closely with foreigners and learning to distinguish between differences in business practice, which are simply driven by cultural specifics, and those that can actually harm CarryMore’s operations. Therefore, there are three skills, which ought to be acquired by the corporate personnel before expanding – communication, observance, and critical judgment.
All of these can be trained by organizing a corporate learning activity, which functions on scenario-based learning (SNL). It is an educational approach with a heavy emphasis on practice. SNL provides flexibility by integrating elements of roleplaying and situational awareness (Papadopoulos, 2019). Not only does it acquaint the participating staff with the specifics of local communication and cultural nuisances, but it also teaches them to view the circumstances from the company’s perspective. Moreover, SNL is the only approach, which allows the learners to practice outside-the-box thinking. Learning to deal with multiple variables in an unpredictable setting will be extremely useful for expanding into the yet unknown foreign market.
The successful execution of such an activity necessitates several important steps. First, CarryMore’s management should choose the people, which will be engaged in the communication with the Croatians. Second, they will have to participate in roleplaying scenarios, imitating possible difficulties and business obstructions in Croatia. It should be noted that these scenarios will have the most value when they diverge from typical British business practice. Third, participants may also learn about the experiences of other British multinational companies in Southeast Europe. Fourth, it is better to have a Croatian coach or business representative commenting on the plausibility of such scenarios in real practice. Overall, these steps will produce a comprehensive immersion in a business setting with adequate and appropriate commentary from Croatian representatives.
However, the major benefit that SNL will bring CarryMore is exposure to a foreign setting. Before the decision to expand its presence abroad, the company was a purely domestic enterprise. It also means that CarryMore was limited by exclusively British practice and market orientation. Establishing a subsidiary in Croatia discloses future business opportunities in Southeast Europe. According to the network theory, the organization changes its structural and relational properties (Whelan, 2016). Regarding CarryMore, the company starts to become multinational. This is a significant shift in the organizational culture, which can potentially develop into international thinking. Ultimately, entering the Croatian market can become a major milestone in the story of CarryMore.
References
Cho, Y., Daim, T. U., & Dabic, M. (2017). Investigating the effects of foreign direct investment (FDI) on Croatian business. The Journal of High Technology Management Research, 28(2), 208-220.
Croatian Backpacks. (n.d.). Web.
Department for International Trade. (n.d.). Exporting to Croatia. Web.
Duspara, L., Knežević, S., & Turuk, M. (2017). Competitiveness and innovation challenge in Croatia. Poslovna Izvrsnost, 11(2), 41-57.
Papadopoulos, A. (2019). Integrating the natural environment in social work education: Sustainability and scenario-based learning. Australian Social Work, 72(2), 233-241. Web.
Rogerson, C. M., & Rogerson, J. M. (2020). Camping tourism: A review of recent international scholarship. GeoJournal of Tourism & Geosites, 28(1). 349-359.
Sestu, M. C., & Majocchi, A. (2020). Family firms and the choice between wholly-owned subsidiaries and joint ventures: A transaction costs perspective. Entrepreneurship Theory and Practice, 44(2), 211-232.
Verbeke, A., & Yuan, W. (2020). The tyranny of the head office? Revisiting corporate headquarters’ (CHQs) role in MNE subsidiary initiatives. Journal of Organization Design, 9(2). 1-11. Web.
What about Croatia? (n.d.). Web.
What about the UK? (n.d.). Web.
Whelan, C. (2016). Organizational culture and cultural change: A network perspective. Australian & New Zealand Journal of Criminology, 49(4), 583-599. Web.