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Tesco and Global Supermarket Chain in Hungary: Cultural Issues Essay


Introduction

When a business prospers in its home country, international expansion is always the next option. Therefore, it is important for countries to understand the cultural differences that exist in other countries before introducing their business to these countries. According to Lan (2005, p.101), the author of a book titled ‘Global information society: operating information systems in a dynamic global business environment,’ culture can be defined as the unique way in which a specific society lives. The United Kingdom is home to some of the largest retail businesses, such as Tesco. United Kingdom’s official language is English; however, due to the presence of many foreigners, French and German are also common languages.

Business relations between the United Kingdom and Hungary have been in existence for many years; indeed, countless British tourists visit Hungary annually. Many Hungarians also work and study in the United Kingdom. In addition, the open economy in Hungary has allowed room for foreign investments from companies such as Tesco, which aid in job creation for the country’s citizens (Hungary, 2011). Its main aim and economic policy are directed towards two pillars: increasing competitiveness and the levels of employment. The government’s main objectives include creating one million new jobs in ten years, economic growth, improved education, innovation, and creating a stable fiscal policy (Hungary, 2011). Hungary has proven to be a major attraction for foreign businesses, one of the major reasons being its use of the English language as an international business language.

Cultural diversity is vital as it influences the profitability of foreign business. When cultural awareness is improved, international competencies are built, and global sensitivity is evident. McDonald, Burton & Dowling (2002, p.156) further add that the values and norms of a country establish moral codes of the required behavior. Tesco is one of the largest grocery retail businesses in the world; it was founded by Sir Jack Cohen in 1919. According to Radosevic and Yoruk (2000 p19), the authors of an article titled ‘International expansion and buyer-driven commodity chain: the case of Tesco,’ Tesco bought a 57% of supermarket chain in 1994, which included 41 stores in west Hungary for 15million. Tesco has over 200 stores in Hungary, with Tesco Extra being their latest opening in Hungary.

Tesco’s motive is to expand its business, and this can be facilitated by a culture of ensuring that the management monitors employees and managers’ decisions. According to Parish (2007, p.11), an author in the Nursing Standard Journal, Tesco has a culture of keeping customers happy by satisfying the employees. In addition, the company maintains a healthy relationship between the staff and their immediate managers, a strategy that leads to increased performance and customer satisfaction.

This paper will focus on addressing the emerging problems of the two cultures of Tesco and Global Supermarkets while analyzing and recommending the possible solutions Tesco requires to maintain healthy trade relations in Hungary.

Tesco – Global Supermarket Chain acquisition

According to Thompson and Martin (2010, p.549), authors of a book titled ‘Strategic Management,’ ever since Tesco acquired majority control of Global, a 41-store supermarket chain in Hungary in 1994, it has expanded its number of stores in Hungary. By 2008, Tesco had 13 supermarkets and 13 hypermarkets in Hungary, providing employment to over 8000 Hungarians (Radosevic and Yoruk, 2000, p.20). Tesco’s main aim of the global food chain takeover was to expand its business and make profits internationally.

Another reason why Tesco internationalized by acquiring the Global Supermarket chain was driven by the aim of seeking for resources and a market, hence increasing market power (Hoskisson, Hitt & Ireland, 2008, p.245). Expanding to Hungary entailed the fact that Tesco would create jobs and attract customers who would contribute to the company’s returns. In addition, Tesco would have access to cheap labor compared to the UK.

Acquisitions make it easier for businesses to develop new capabilities and increase diversification; Tesco’s decision to acquire Global Supermarket Chain can be related to the strong market position that Hungary has. Tesco’s intention for the acquisition was based on “securing a foothold in the market and learn from the local businesses, and later on build a hypermarket based on their experience” (Fernie, 2005, p.29).

Cultural issues between the two countries

Tesco originates from the United Kingdom, while Global Supermarket Chain originates from Hungary. These are two different environments consisting of different lifestyles. These differences influence the way business is conducted, involving communication styles, teamwork, negotiations, and management styles. In the United Kingdom’s organization setup, the boards of directors are part of the company’s decision-making process. In addition, there is less bureaucracy in the organizations, whilst man-management skills are emphasized by managers (World Business Culture, N.d). The citizens of this country prefer a firm handshake upon arriving, and when leaving, while maintaining eye contact is vital but not a prolonged one.

British managers use indirect mode of communication to their subordinates, unlike in Hungary, where direct and face-to-face communication is paramount. In Hungary, the official language is Hungarian; however, German and English languages are used in meetings.

Nevertheless, close relationships exist between the managers and the subordinates (Kwitessential, 2011). Courtesy titles such as Mr., Mrs., and Miss are commonly used, and they rarely use their partner’s first names until they are familiar with them; moreover, business cards are also commonly exchanged in business meetings (Kwitessential, 2011). Teamwork is encouraged in the United Kingdom, and employees are encouraged to contribute to decision-making. Meetings are also frequent, as one meeting leads to another; however, minimal preparations on such meetings are required (World Business Culture, N.d). In Hungary, appointments should be made in advance and in writing in case of a business meeting. Business meetings are conducted keenly and are not finalized without the presence of food, drinks, and entertainment (Kwitessential, 2011).

Beitle et al. (2011), renowned authors on culture, insist that aligning two cultures does not necessarily mean making them similar; instead, it means addressing their differences. Given the differences in language between the two countries, Tesco management is expected to learn the Hungarian language in order to conduct business effectively. Nevertheless, improving cultural awareness is a vital tool for solving cultural differences.

Punctuality is encouraged in meeting, and the working hours are between 9 am to 5pm, from Monday to Friday. The structure of Hungarian companies involves managers as the main decision-makers and employees are not consulted. Unlike in the United Kingdom, doing business with Hungarians involves socialization even outside the place of work (Communicaid group, 2010). Negotiations take a long time before a decision has been made; however, deadlines must be met at all times. The Hungarians also encourage clear and precise contracts, which are flexible in case of changes occur; they also appreciate culture awareness.

Cultural problems facing Tesco

Non–governmental organizations in Hungary have frequently opposed the expansion of Tesco stores in the country. For instance, in 2000, Tesco was planning to build a hypermarket in the oak forest by clearing nine hectares of the forest, but the non-governmental organizations filed a petition against the investment, as evidenced by Tescopoly (2011), an alliance that highlights Tesco’s behaviors affecting the environment. Another challenge occurred in 2003 when Tesco planned to build a mall above some part of a water reservoir; however, the move was opposed by several NGOs in Hungary.

The high opposition from the Hungarian citizens poses as differences in cultures whereby the citizens feel that Tesco is invading their territory at some point.

Tesco Hungary has had to deal with a number of industrial disputes, with one challenge involving disparity in wages, and another one involving seeking the consent of labor union before dismissing employees. However, according to EIRO (2011), a website on industrial relations, employers do not encourage collective agreements or unions.

According to an article in BBC News titled ‘Tesco fined for Hungarian adverts’ (2006), Tesco has faced various problems in its operations in Hungary; for instance, Tesco was fined £247,000 by the Hungarian government for publishing misleading information on a promotion pamphlet. This is a clear indication of how cultural issues can vary, hence costing an organization dearly.

Solutions to Cultural Problems

Generally, Hungarians have a positive attitude towards a free market, which encourages foreign investment (Communicaid group, 2010). Tesco had to build numerous malls in order to expand its operations in Hungary and provide job opportunities to hundreds of Hungarians (Radosevic and Yoruk, 2000, p.20). However, the challenge was finding locations to expand, as their attempt to clear forests was vehemently opposed.

It is evident that the citizens of Hungary were ready to protect their culture and environment, forcing Tesco to rethink its move carefully. Indeed, most of the cultural problems facing Tesco in Hungary were solved through a legal process. The size of Tesco stores has also been an issue of concern for the Hungarians, with the company being forced to reduce the initial size of some of their stores by a third. Parish (2007, p.11) insists that Tesco has an excellent management style, which other companies like NHS have tried to adopt. The company motivates its employees via meeting their needs, and in return, they are able to relate well with customers, hence guaranteeing customer satisfaction.

Recommendation

For Tesco to avoid further cultural problems in Hungary, implementing strategies that suite the Hungarian culture is vital. For instance, Tesco can hire managers with Hungarian business experience who would be advising the management on the dos and don’ts when dealing with employees. In addition, the company should promote cultural awareness among its employees, especially those who hail from the UK so that they acknowledge, accept, and appreciate Hungarian culture. Cross-cultural awareness will enable the company to work effectively in many countries with a diversity of cultures. Managing culture should be Tesco’s other priority, though it can be challenging. Once active, it is advantageous to the business, as it fosters uniformity.

Hofstede’s Cultural Dimension Theory

According to Reagan and Northcentral University (2009, p.30), authors of the book titled ‘Comparison of Dutch and American leadership practices in a NATO organization,’ Hofstede’s four dimensions include power distance, individualism, uncertainty avoidance, and masculinity. Power distance refers to the degree of inequality among individuals, which a country considers normal. Generally, a country with a high power distance score accepts the inequalities between people, where subordinates and their bosses are rarely close in high power distance. However, a country with a low power distance does not emphasize or encourage inequalities in people; such a society insists on equality. Here, superiors respect their subordinates, and they get along well. This is the case with Tesco’s management, whereby, a healthy relationship between the management and the staff is encouraged (Parish, 2007, p.11).

Individualism dimension involves individualists or collectivists; individualists value individual freedom, whilst collectivists prefer group harmony (Reagan and North central University, 2009, p.31). When a country has a high individualism score, individual rights are dominant, and relationships are formed with a large number of people. However, low individualism in a society indicates a high level of collectivism, where families are given priorities, and individual ties are very strong. Rules and regulations govern a country by ensuring order, stability, and obedience; this is common in both the United Kingdom and Hungary.

Masculinity dimension involves power, control, and achievement, and therefore, a high masculinity score entails that a country experiences a high degree of gender differentiation, with men tending to dominate the powerful categories in a country. However, when a society comprises of low masculinity, the level of inequality and gender discrimination is low; the United Kingdom is one such country where there are equal opportunities for both genders. According to Kovacs (2007, p.7), an author of an article titled ‘Fostering Gender Equality: Meeting the Entrepreneurship and Microfinance Challenge,’ gender equality in Hungary is a requirement according to the country’s constitution. The diagram below shows the masculinity dimension in Hungary.

Fig 2: Employment by occupational group and sex in Hungary (thousands, 4th quarter 2005)

Occupational group Women
(1000) people
Men
(1000) people
Share of women (%) Share of men (%)
legislators, senior officials & managers 108,5 199,8 35.5 64.8
Professionals 290,3 212,4 57.7 42.3
Technicians and associate professionals 371,4 198,5 65.5 34.8
Clerks 224,1 15,7 93.5 6.5
Clerks 994,3 626,4 61.4 38.6

(Source: EIRO 2007)

Uncertainty avoidance is the final dimension of Hofstede’s cultural theory; it comprises the level of ambiguity and uncertainty within a nation (Reagan and North central University, 2009, p.32). A society that has high uncertainty avoidance has low tolerance towards uncertainty and ambiguity, and therefore, such a society abides by the rules and regulations. A low uncertainty avoidance society is less concerned with rules and regulations and accepts change easily, and is ready to take risks. Tesco is one such company that takes risks, with an aim of expanding its business horizons.

Hofstede’s dimension United kingdom Hungary
PDI 35 46
IDV 89 80
MAS 66 88
UAI 35 82

Hofstede’s dimensions: United Kingdom vs. Hungary

Hofstede’s Cultural Dimensions
Figure 1. Hofstede’s Cultural Dimensions

Therefore, Hungary can be characterized as individualistic; it is high on uncertainty avoidance, and low on power distance. The United Kingdom has a low context on power distance, and uncertainty avoidance; however, it is high on masculinity and individualism.

Conclusion

Cross-cultural interactions are common, especially in countries trading together; however, cultural differences are evident due to the different cultures of different countries, which can interfere with business interactions. Multinational companies such as Tesco encounter cultural differences as they attempt to expand their business internationally. Societies choose different forms of cultures, which can be related to Hofstede’s cultural dimensions. For instance, individualism is higher in the United Kingdom compared to Hungary. It is vital for companies to create culture awareness, as this will enable individuals to communicate and relate well with people of other cultures. Nevertheless, before a company starts its operations in another country, it must be aware of the prevailing customs, beliefs, norms, and values.

Reference List

Beitle, M. et al. 2011. The Offshore Culture Clash. A.T. Kearney Inc. Web.

Communicaid Group Ltd. 2010. Doing Business in Hungary | Hungarian Social and Business Culture. Web.

EIRO. 2011. Industrial disputes at Tesco Hungary. Web.

EIRO. 2007. Web.

Fernie, J., 2005. International journal of retail & distribution management incorporating retail insights: International retailing. NY: Emerald Group Publishing.

Hoskisson, R., Hitt, M., & Ireland, D., 2008. Competing for advantage. OH: Cengage Learning Publisher.

Hungary. 2011. Economy. Web.

Kovacs, I., 2007. Fostering Gender Equality: Meeting the Entrepreneurship and Microfinance Challenge. Web.

Kwitessential. 2011. Hungary, Language, Culture, Customs and Etiquette. (Online). Web.

Kwitessential. 2011. UK – Language, Culture, Customs, and Etiquette. Web.

Lan, Y., 2005. Global information society: operating information systems in a dynamic global business environment. NY: Idea Group Inc (IGI) Publisher.

McDonald, F., Burton, F., & Dowling, P., 2002. International business ITBP Textbooks Series. OH: Cengage Learning EMEA Publisher.

Parish, C., 2007. NHS to learn lessons from Tesco in listening and responding to staff. Nursing standard, Vol. 21 Issue 28, p11-11.

Radosevic, S., & Yoruk, D., 2000. International expansion and buyer-driven Commodity chain: the case of Tesco. Web.

Reagan, M., & North central University. 2009. Comparison of Dutch and American leadership practices in a NATO organization. NY: ProQuest Publisher.

Tesco fined for Hungarian adverts. 2006. Web.

Tescopoly. 2011.. Web.

Thompson, J., & Martin, F., 2010. Strategic Management. OH: Cengage Learning EMEA Publisher.

World Business Culture. N.d. British Management Style-UK. Web.

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