Multinational corporations are dedicated to the development of an activity (ies) in several countries where they will seek further growth of its operations, a major expansion of its activities, resulting in significant economic growth, given the low costs that will lower prices andÂ an expansion of its market
When MNCÂ´s move to a different country, different barriers are presented, and they have to deal with different issues, some of these issues belong to the country they are entering and some others are brought by the MNC's
After analyzing various of these aspects/barriers such Distance from parent company, different laws and legal systems, different stages of progress in the art of applying accounting, different accounting practices, different types of currency. We found that culture was not usually defined as a main barrier, some aspects of culture like Different languages and the resulting barriers to facilitate communications are usually mention but culture itself as one of the main barriers is not usually quoted.
We consider that in some specific countries, culture could become if not the main barrier one of the main barriers for MNCÂ´s when entering and trying to succed in a new country because it influences the whole structure of the country, their legal system, government and peopleÂ´s behavior. To back up our idea we would like to present as an example the Starbucks case in China, the huge impact Starbucks caused when entering Chinese market, a country marked by its traditional culture; where Tea has been the historical national drink for centuries.
The conclusion in not only that in some specific cases culture is one of the main barriers when entering a new culture and that not only MNCÂ´s are affected by the local culture but that also that the local culture could be modified by MNCÂ´s.
From the beginning of time people tend to swap the elements or objects they create with other men.Â The same tendency is seen on the small feudal economies, the great empires and today on the so called nation-states.Â This due to the fact that an efficient self-sufficiency is very difficult to achieve, and does not lead to a country's overall welfare.
Trade among nations finds its origin in a very concrete fact: It is beneficial to all parties involved.Â For nations that export because they put their production and generate foreign exchange, and the ones that import because they receive goods, and in some cases to produce them themselves would cost more money.
The fact that each country or region has different characteristics in terms of allocation of production factors (natural resources, physical capital, human resources and technology) provides specialization in the production of goods.Â Also different tastes and preferences of consumers, and can lead to the economies of scale.
The world trend of economic globalization and open markets, has forced countries to seek ways to encourage non-traditional exports, attracting foreign investment to create new jobs, increase foreign exchange earnings and achieve competitiveness.
Modern MNC's arose with the U.S. direct investment in Europe in the 50s and 60s decades of the twentieth century.Â This phenomenon became worldwide when European and Japanese companies joined the tendency.Â
Today, various number of MNCÂ´s have emerged in countries such as China, India, Mexico, Brazil and Southeast Asia.
When these MNCÂ´s move to a different country, different barriers arise, and they have to deal with different issues, some of these issues belong to the country they are entering and some others are brought by the MNC's.
First we would like to mention some of these aspects MNCÂ´s have to deal with when entering a new country, to finally focus on how culture could become a big barrier for MNC's when entering a country, explaining and analyzing the Starbucks case in China and the cultural shock presented after the company entered the Chinese market, a market being strongly influenced by a traditional Tea Culture, where Tea has been the historical national drink for centuries.
MNCÂ´s and itÂ´s barriers
Multinational corporations or transnational corporations are those that are not only established in its country of origin but also in other countries, to perform their business activities( both sales and purchasing and production) in countries where they have settled.
Multinationals are able to expand its production and other operations around the world, and to mobilize industrial plants from one country to another.Â The mergers and alliances between them, allow them to meet growing power and influence in the global economy.
ItÂ´s philosophy is an overall concept, which maintains a global perspective on their business ,market (customer), services and products, under which is conceived the whole world as your target market.Â These companies are characterized by the employment of both the country of origin and the country in which they settled.
The term "multinational" is understood as a market refers not to the nature of the company: in fact, it is usual to qualify the term "multinational" of deceptive and prefer to call "transnational" because although they operate inÂ several countries, its location and top executives as well as the source of its strategy and management in general, it located in their country of origin without any influence from their overseas subsidiaries.
When companies are interested in participating in international trade or seeking to diversify markets, the need to negotiate with foreign businessmen and several problems/barriers usually arise.Â As is known, an international negotiations involves two or more parties, resulting in the need to resolve conflicts or setbacks which usually becomes a big problem for MNCÂ´s.
The culture has a direct influence in international negotiations, since not all countries are traded in the same way.Â Aspects as fundamental values, habits, customs, religion, moral, etc. Are essential to know, before you can have good communication and then negotiating for a mutually beneficial.
In this work we will talk about how culture influence international negotiations, cultural differences, which is an international negotiation, how is the process of international negotiations and finally analyze how to do business with Mexicans, advantages, benefitsÂ and why investing in Mexico.
We would like to mention some of the most common problems that MNCÂ´s have to deal with but to mainly focus on how culture has a direct influence in international negotiations, since not all countries are used to practice trade in the same way.Â Or some aspects as fundamental values, habits, customs, religion, moral, are essential, and could affect the whole process of the MNC.s.
Distance from parent headquarter: this difficulty is presented by the distance between the principal headquarter and its subsidiaries at the time of collecting information from different movements and transactions, which are necessary for the preparation of financial statements, these delaysÂ be reflected when the time comes to file consolidated reports.
Foreign Law: Each country has its own laws and administrative agencies that regulate accounting in that country, so when it's the time to prepare the financial statements some requirements are not complied with the rules given in each countryÂ´s law and can cause problems in the company.
Some companies require that all its subsidiaries follow the same methods of accounting, which is why multinational companies make an accounting manual that provides a chart of accounts, standard rates of depreciation and a number of report forms, allowing them toÂ Account and to compare costs among countries.
Differences in accounting practices: When a subsidiary conducts its financial statements, these are made according to the laws of each country, but to consolidate the information can be somehow difficult.Â
When the are different subsidiaries, they have to adapt their statements to the practices established by the parent headquarter.
Seeking to achieve a greater confidence and credibility of transactions and movements of each subsidiary the parent HQ chooses to apply some of their practices in other countries, sometimes without being aware that this can bring administrative and legal consequences to its subsidiaries, which is why it is best to train foreign personnel to perform their functions resembling what you want to headquarters, but according to the development of these countries.
there are almost as many definitions of culture as anthropologists, most of them conceive of culture as the sum of beliefs, rules, techniques, institutions and instruments that characterize human groups.Â In other words, Â¨culture consists of common patterns of behavior that are learned by members of a given society, which represents the particular style of life of a specific group of person".
When people work in societies and cultures that differs from their own, the problems faced multiply by covering a single set of cultures by the number of cultural sets found in each foreign market.
(Gelles 2000) International Journal of Good Conscience. 2(2) : 156-228. Septiembre 2007. ISSN 1870-557X.
Unfortunately, very often those who knows a single cultural pattern believe, they have knowledge of the cultural characteristics of other places, when in reality it is not achived, unless they are able to make comparisons with other cultures, and may not even know the most important features of their own.Â Perhaps it is also unnoticed the fact that each company believes that their culture is superior to others (ethnocentrism) and their attempts to introduce their style to find a stiff resistance.
There are several aspects that from culture that could interfere in MNCÂ´s operations, according to some experts in general and as we studied on the course Organization and culture, in general the most important are:
Aesthetics, Attitudes and beliefs, Religion, Materialistic culture, Education, Language, Social organization.
So focusing on culture as an important issue for MNCÂ´s when entering a new country, the research question proposed by us and which we want the reader to analyze and create conscience about is:
Â¿Could culture become the main barrier for MNC's when entering a new country?
With the concepts mentioned before, intending to answer the proposed research question and trying make a deeper analysis we would like to present the Starbuck case in China, as a particular example of how culture and its main components could become the main barrier for MNCÂ´s when entering a new country.
According to some studies, " Chinese Culture is one of the world's oldest and most complex cultures in the world. The area in which the culture is dominant covers a large geographical region in eastern Asia with customs and traditions varying greatly between towns, cities andÂ provinces" 2.
"Chinese Dynasty Guide - The Art of Asia - History & Maps".Â Minneapolis Institute of Art. Retrieved 10 October 2008.
The Starbuck's Case in China
Starbucks is an international coffee chain based in Seattle, Washington.Â It is the largest coffee company in the world, they sell processed coffee and espresso, hot drinks and other beverages, snacks and also sells some other products such as mugs and coffee beans.
Starbucks Experience is about passion for a quality product, excellent customer service, and people. With nearly 3500 coffeehouses in 44 countries, it is clear that Starbucks passion transcends language and culture.
Since its international journey began in 1996 with its first coffeehouse in Tokyo, "we have been amazed by the global acceptance and visibility of our brand in all our international markets,"(3) says Howard Schultz, chairman and chief global strategist. All this information was taken from the Starbucks web page.
During a convention in china when the executive Lawrence Maltz distributed free cups of Starbucks coffee to Beijing hotel guests They identified there was significant interest from both foreigners familiar with the Starbucks brand and Chinese who didn't know the brand an interest to participate in this element of Western culture. Starbucks' desire to expand into the Chinese market grew making it a fact.
Starbucks' goal of establishing a firm presence as the premier coffee business in China has the company pouring millions into Chinese companies, resources, real-estate, and taxes.
Â Web Page Starbucks. (September 16, 2007), www.starbucks.com.
But it was not after taking this mayor decision, that they made a mayor discovery; once they established the Chinese market, they had to deal with the fact that the fact that Tea has been the historical national drink for centuries in China.
Chinese Tea Culture
The Chinese have a saying: 'Firewood, rice, oil, salt, sauce, vinegar and tea are the seven necessities to begin a day.'(4) Though tea is last on the list, we still can see the importance of tea in daily life. It
Not only this, furthermore there are some special occasions in which tea is prepared and consumed:
As a sign of respect
For a family gathering
To connect large families on wedding days:
Making some research about the tea culture we found this information in several pages and that we would like to quote as it is because it explains how huge and important is the tea culture in China
Â¨The Chinese take their tea seriously. Everyone, from taxi drivers to company presidents, drinks tea every day, all day long. Tea is consumed in liters: cups upon cups of the lovely, steaming, fragrant stuff. But any Chinese tea expert knows that much of the action and excitement takes place long before the first sip. While most everyday tea is just a matter of water sloshed over tea leaves, a true tea fan knows there are meticulous details of brewing time, water temperature, quality of water, types of tea pots and cups that make a big difference in the result. And that's after all the care has been taken to grow and ferment the delicate leaves, to blend and so on. Tea tasting has also a cultural meaning, tea and tea wares should match surrounding elements such as breeze, bright moon, pines, bamboo, plums and snow. All these show the ultimate goal of Chinese culture: the harmonious unity of human beings with nature. Tea could be compared to personal character, the fragrance of tea is not aggressive; it is pleasant, low-keyed and lasting. A friendship between gentlemen is also like a cup of tea. With a cup of tea in hand, enjoying the green leaves in a white porcelain cup, you will feel peace. Fame, wealth and other earthly concerns are far away. Tea is the symbol of elegance.Tea is a mysterious but harmonious combination; it is spiritual as well as material, and invigorating as well as pacifying. Its character is flexible in different environments. For example, as tea goes in a different direction, a different tea culture is formed. Tea-drinking habits vary in different parts of China. Roughly, scented tea is popular in northern China; green tea is preferred in eastern China, and black tea is optimum for people in Fujian and Guangdong. Notably, Yum Cha (tea drinking) is very popular in Hong Kong and Guangdong Province. Though dim sum, the true highlight of Yum Cha, is what attracts gourmets, tea is an essential part of the meal. While tea culture has regional differences, it has reached its heights in Taiwan and in Fujian Province, and cultivation has been the livelihood of numerous tea growers for eons. This is also the origin of the elaborate tea pouring "ceremony." First, a tray is presented holding no fewer than 10 items, all of which are carefully introduced. The tiny teacups are used exclusively for sipping. Once properly steeped, the tea is first poured into a high, narrow cup called the holding cup or sniffer cup, whose aroma is meant for you to enjoy. From this cup, the tea is poured into the tiny teacup. (4)
After mentioning this we would like to discuss the cultural difficulties that Starbucks had to face when establishing in China
There were some specific difficulties that Starbucks had to face when entering in China. The first one was that the non-smoking policy of Starbucks would be against the high smoking Chinese consumers who would not be such as happy to be kept from smoking while drinking a cup of coffee inside the coffeehouse. Starbucks philosophy does not want anything, even cigarette smoke, to interfere with the great smell of its coffee beans. However, unexpected was the consumers' good reaction to this policy, as the smokers say they do not have problem with smoking outside.
(http://www.travelchinaguide.com/intro/cuisine_drink/tea/culture.htm.The second challenge was a little bit more serious and harder to face. Taking care of face is a very important cultural matter for Chinese people and they would have preferred not to drink or eat in public because by that way they could lose their face. However, even though they prefer to have their meal or coffee inside Starbucks, after all the market entry strategy and the well known brand name, one actually can see many people handing a Starbucks cup on the streets, proudly showing the Starbucks logo on the cup and reflecting a lifestyle and class status. This can only happen because of the high awareness of the brand achieved by Starbucks, and this combined with a Chinese market so brand-oriented. Customers go to Starbucks not for the coffee, but to present themselves as modern Chinese in a public setting.
In United States, Starbucks is a lifestyle, and most people there buy their coffee to drink it while walking or driving to work. So, most than half of Starbucks' sales within the US are for take-away. Also, most of sales in US market occur during the morning, since people use to have there breakfast or simply buy it to consume it at work.
On the other side, a large majority of Chinese prefers to drink their cup of coffee inside Starbucks and have a treat with some friends or coworkers. They take the time to properly enjoy their meal and coffee. Also, another marked difference in consumption is that most Chinese use to go to Starbucks during the afternoon and at night after work looking for relaxing themselves and think about what they did all day. People in China go to Starbucks not only for the coffee, but also for the relaxing environment is inside the coffeehouse. Also, contrary to American, they almost never drink the coffee alone; they use to have some meal with it, and that is why Starbucks in China have to worry about offering great meal options to their customers. Then, as in the US, Starbucks in China is also a lifestyle, obviously with its own particular matters different from American.
Tea is an important issue of Chinese culture. However, Starbucks has successfully entered in the Chinese market offering a western style and western products to people who just want to live something different from their own culture. So customers do not go to Starbucks just to have some flavor they can find everywhere; Starbucks is the western culture representation, and that is how the Chinese have seen it. On the other hand, the coffee consumption in China is growing in very high rates each year, and it is being conceived as a more informal beverage. Nestle was the first company to enter coffee in China, but Starbucks is the first one in offering real coffee to the masses.
After analizing this we can see how culture became one of the main barriers for them when establishing in china, and give us the knowledge to state that not only Starbucks had to adapt to the fact China had a traditional Tea culture, but also see how they change peopleÂ´s minds and made them try something new, inviting Chinese people to leave behind some of their traditional customs and try new things.
(Most of the information related with China was taken from "Coffee Goes to China: An Examination of Starbucks' Market Entry Strategy", by Jen-Lin Hwang)
In fact in some specific occasions culture can become the main barrier for MNCÂ´s when trying to succeed in a new country, giving culture a big relevance for MNC's due It is important for foreign investors to know that there are differences between their countries and ours, and that many basic things that seem, may be unknown to them or just handled differently.
The key to Starbucks' success in China is not related to the establishment o a "coffee culture", their success instead is based on their "lifestyle positioning". Since the 1980's reforms, not only the rich class has grown, the middle class within the huge increase of spent, which makes Chinese to want more weird, rare and new stuff every day.
Ultimately, what is attracting consumers to Starbucks in China is not the drinks but the atmosphere and feeling of being hip/modern etc. Sounds like a simple proposition, but it takes a certain amount of subtlety to pull it off, plus a large serving of positive coverage in the media. Starbucks has suceded on both aspects in China.
Regarding the tea culture, coffee has brought a simpler and less formal way of spending time, or a way to hang out. Tea is closer to culture, and covers a great part of the Chinese one. Coffee is more of a social event than a daily necessity.
Aisin-Gioro, Puyi (1964). From Emperor to citizenÂ : the autobiography of Aisin-Gioro Pu Yi. Beijing: Foreign Language Press. ISBN 0-192-82099-0.
Ho; Bronson (2004). Splendors of China's Forbidden City. London: Merrell Publishers. ISBN 1-85894-2586.Â
Huang, Ray (1981). 1587, A Year of No Significance: The Ming Dynasty in Decline. Yale University Press. ISBN 0-300-02518-1.Â
Yang, Xiagui; Li, Shaobai (photography); Chen, Huang (translation) (2003). The Invisible Palace. Beijing: Foreign Language Press. ISBN 7-119-03432-4.Â
Yu, Zhuoyun (1984). Palaces of the Forbidden City. New York: Viking. ISBN 0-670-53721-7.Â
Journal of Undergraduate Research
Volume 6, Issue 8 - July/August 2005
China's Burgeoning Coffee Culture http://www.teacoffeeasia.com/news.asp?id=467