Cultural Challenges

Introduction

"Culture in a global economy is a critical factor in international business. While many business transactions make economic sense, the ability to successfully fulfill profitable relationships often depends on being able to reconcile international differences arising from separate cultures."(Wong, n.d., p.1) "Understanding cultural differences is an initial step, but managers also need to engage in learning processes to develop international cultural competence. Cross-cultural training enables managers to acquire both knowledge and skills to fulfill the role of cultural agents."(Wong, n.d., p.1). Advancing cultural intelligence and international cultural competence is critical to the future success of managers and leaders working in a global context. (Wong, n.d., p.1).

In these pages, I will analyze the cross-cultural differences between the United States and Czech Republic, determine comparative advantages in this country, and recommend ways to minimize the risks of establishing a franchise overseas.

According to the web site http://www.allbusiness.com, "franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business." (Allbusiness, n.d., ¶1)

Each franchise business has been authorized by a parent company, or franchisor, to sell their goods and/or services either in a retail space or a designated geographical area. The franchise governs the method of conducting business between the two parties. Generally, a franchisee sells goods or services supplied by the franchisor or that meet the franchisor's quality standards. This relationship is regulated by FTC laws. (Allbusiness, n.d., ¶2)

The popularity of the franchise business model has to do with its proven track record of success and ease in becoming a business owner. Independent, non-franchise businesses have a much higher likelihood of failure within their first year than franchises. One of the most compelling reasons is that, in a franchise operation, the franchisor provides business expertise (marketing and advertising plans, management guidance, financing assistance, site location, administrative support and training) that otherwise would not be available to businesses starting from scratch. Franchisees bring to the relationship entrepreneurial spirit and drive, which may not be enough to keep a business afloat if the franchisee lacks significant business acumen. (Allbusiness, n.d., ¶3)

Franchising extends beyond the right to use a well-branded business name and sell a franchisor's services or products. There are three main types of franchising: (Allbusiness, n.d., ¶4)

* Product/trade name franchising: A franchisor owns the right to the name or trademark and sells that right to a franchisee. (Allbusiness, n.d., ¶5)

* Business format franchising: Franchisors provide a full range of services, including site selection, training, product supply, marketing plans, and even assistance in obtaining financing. (Allbusiness, n.d., ¶6)

* Distributorships: A parent company grants the right to a franchisee to sell their products. (Allbusiness, n.d., ¶7)

We can find franchise opportunities on the web sites of some companies. The information publicized will include the following:

Net Worth and Capital Requirements

Chicago Style's net worth and capital requirements for new franchisees are as follows:

1-3 units * Minimum net worth of US$250,000; and

* US$225,000 per restaurant in cash, liquid assets, or available financing.

4-7 units * Minimum net worth of US$1,000,000; and

* US$225,000 per restaurant in cash, liquid assets, or available financing.

8 or more * Minimum net worth of US$3,000,000; and

* US$200,000 per restaurant in cash, liquid assets, or available financing.

These are minimum requirements and do not represent the total potential costs to open and operate one or more Chicago Style Pizza units.

Ownership

* The prospective franchise group should have at least one partner with a business background and one partner with substantial restaurant or retail management experience.

* The Principal Operator must live in the area to be developed throughout the term of the franchise group's existence and must have prior management experience relative to the number of units to be developed.

* A personal financial statement and resume must be submitted for each member of the proposed franchise group, and a resume must be submitted for the Principal Operator candidate.

International Franchise Fees

* The initial franchise fee is US$25,000 per unit for a standard Chicago Style Pizza restaurant.

* An ongoing management service fee (or royalty) of 5% of net sales is due on a monthly basis.

* Chicago Style Pizza requires that a minimum of 6% of net monthly sales be spent by each franchisee for marketing purposes, as follows.

* 5.5% is spent on local marketing; and

* 0.5% is paid to a global marketing fund.

International Franchise Agreements

* Letter of Intent: This letter outlines our understanding of the territory and the number of units to be developed in such territory, and requires a deposit. The deposit will be credited against the Exclusivity Fee, which is due when the Master Franchise or Development Agreement is signed.

* Development Agreement: The binding agreement that includes development rights and obligations and outlines the development schedule. Under certain conditions, we will consider a Master Franchise Agreement.

* Unit License Agreement: The agreement that is signed when each restaurant is scheduled to open. This agreement governs the term and operations of the unit.

Putting the Pieces Together: Becoming a Chicago Style Pizza Franchisee

If you believe you meet Chicago Style requirements and wish to become part of our franchise family, please proceed to the next step.

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