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Global Bunsiness Cultural Analysis for Croatia

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Global Business Cultural Analysis for Croatia
Camilla J. Johnson
International Business 604
Liberty University
10 May 2013
Dr. Maria Marin

Abstract
Croatia is a country that has encountered so much devastation in the past with multiple wars. The wars have caused Croatia to fall behind in the economy and also in their infrastructure. They are currently trying to rebuild their country and bring it out of recession. Croatia will become a part of the European Union on 1 July 2013, which will help significantly with balancing their trade and economy. The United States has also come to their rescue in helping them regain their strength to become a major part of the global trading.

WHAT ARE THE MAJOR ELEMENTS AND DIMENSIONS OF CULTURE IN CROATIA?

Croatian History. The Croatian history has shaped their society, specifically the most recent civil war 1991-1995. On 25 June 1991 Croatia was able to claim its independence from Yugoslavia. The problem was that their independence caused a destructive response from the Croatian federal military triggering a full out war that went until 14 December 1995. Due to the war Croatia’s economy suffered immensely causing them to fall behind on the investment possibilities specifically entrance into the Central Locations and Eastern Europe. Croatia had a steady GDP growth of about 4% and 6% from 2000-2007 from credit-driven consumer spending and the increase of tourism. Another factor that aided in the growth was that the Kuna, (their currency) and the inflation rate remained stable during the 2000-2007 period. In 2008 Croatia had an unexpected decrease in the economy which has yet to recover. Croatian economist believes the problem lies within the growing trade deficit, obdurately high unemployment rate, uneven regional development and a challenging investment climate. (Economy – overview) Other significant events that shaped Croatia is when Yugoslavia re-instated diplomatic relations with Croatia on 1 December 1996, and it became a part of the Council of Europe. One of the downfalls according to the Croatians is the re-election of president Tudjman. He was initially elected in 1990 and subsequently elected two other terms, until his death in December 1999. The Croatians felt that Franjo Tudjman erratic behavior as the president caused the economy to suffer in multiple ways. One of the few positive highlights Tudjman’s had was gaining Croatia their independence. Upon his death they held elections, where his party lost and the social democrats, and social liberals won and the new prime minister was elected, Ivica Racan. In 2003 Croatia applied for entrance into the European Union, (EU.) But it took until 1995 for it to pass through the EU because the Croatian government had refused to arrest General Ante Gotovina who was sought out for war crimes. Finally in in October of 2005 they continued with the accession talks as the General was arrested in Spain. In 2006 the EU commission informed Croatia that they were required to clean up the high levels of corruption and the fanaticism of the non-Croats if they wanted to become part of the EU. Through the years of 2007-2009 the Croatian Democratic Union, (HDZ) earned the most seats. The European Commission is still pushing for Croatia to take actions against corruption and organized crime. Croatia formally unites with NATO in April 2009, and the prime minister steps down and Jadranka Kosor is appointed to the seat. Finally after years of debate on the accession, on June 2011, “Croatia successfully completes EU accession negotiations, putting it on track to become the 28th member state on 1 July 2013.” (Timeline: Croatia - A Chronology of key events) The current prime minister is Zoran Milanović who was elected into the seat in 23 December 2011, and the President is Ivo Josipovic who took office on 18 February 2010.
CROATIAN GOVERNMENT/PARLIAMENT Government. Croatia government is parliamentary democracy which has a Prime Minister who is responsible to the Croatian Parliament, which includes the House of Representatives, whom are elected for four years. Then you have the President who the “Republic is the Head of State, directly elected for a term of five years, not to exceed two terms. The President is also Commander in Chief of the Armed Forces, and represents the Republic of Croatia.” (The System of State) Like the United States they have the three branches that are separated by power, the legislative, executive and the judicial branches, according to the Constitution of their state. The legislative branch is the Parliament, which consists of 100-160 personnel that are voted in by secret ballet, once again according to their Constitution. They have a multitude of tasks: “decides on the enactment and amendment of the Constitution, enacts laws and the State Budget, decides on war and peace and on alterations of the borders of the Republic of Croatia, adopts the national security and defense strategy, and ratifies major international treaties. (Legislative Power and the Parliament) The Executive branch is the President of the Republic whom has similar duties and responsibilities as the United States president with the exception of calling elections for the parliament. The Judicial branch is also similar to the United States as its focus is implemented by the courts and the Supreme Court is the highest court in the land. As in the US its decisions our mandated by the Constitution and laws.

CROATIAN PEOPLE AND SOCIETY

Croatian People and Society. Croatia has 4.5 million people which are comprised of “Croat 89.6%, Serb 4.5%, other 5.9% (including Bosniak, Hungarian, Slovene, Czech, and Roma) and their major religion is Roman Catholic at 87.8% followed by Orthodox 4.4% other Christians 2.6% and none 5.2%. (2001 census)” (CIA World Fact Book) Due to the majority of the population being Catholic the Croatian Society is highly influenced in their decisions, for their businesses and education for their children. The true feeling of the Catholic faith can be seen in every village and town as each has their own patron of saint that which they celebrate their birthdates of that saint. Each town or village will have a feast rejoicing, along with a parade and mass at church. There are multiple sanctuaries throughout Croatia built in honor of the Blessed Virgin Mary as the Croatians are particularly dedicated to her. THE CROATIAN PEOPLE AND THEIR CULTURE Croatians. The Croatians are exceedingly proud of their heritage and are Nationalist that thrive on their independence. They have developed their ideologies based upon the long history of wars and invasions throughout the hundreds of years, along with their deep rich culturist background. Their families are significantly important to them and they always come first to include their extended families e.g. in-laws. In times of a crisis’s or jubilation the families are there as a Social network for supporting one another. Unlike the United States they do not believe in putting an aging parent into a long term care facility for the senior’s citizens. The parents will live with their families in the same house until they pass on. They allow very few outside interruptions to interfere with their family life to include their jobs.

CUSTOMS AND ETIQUETTE IN CROATIA Communication Styles: The Croatian communication styles may vary depending on the situation. When meeting up with good friends or family it is not uncommon for them to hug and kiss. When meeting someone for the first time you should address them as Gospodga (Mrs.) or Gospodicna (Miss or young woman), plus the last name. Men are addressed as Gospodin, plus the last name.” (Cultural Information - Dress, Punctuality & Formality) Which should be followed by their surname if you know what it is, and always give the greeting of the day. Ensure that you make direct eye contact when speaking to someone, also when you’re shaking their hand. When attending social gatherings the hosts will introduce the female first then the men starting with the oldest first and then on down to the youngest. BUSINESS ETIQUETTE AND COMMUNICATION Business Setting. In a business environment you should always be on time, but keep in mind that their meetings do not always start on time. In the business setting ensure you shake hands while maintaining eye contact, if it’s a women allow her to initiate the hand shake. Address them with their professional business titles, and give the salutation based on the time of day. They also prefer to start out with small talk prior to getting down to business, reality is they find it rude and may be offended if you jump straight into a business conversation. Because they do not keep to a tight schedule when it comes to business meetings, they may also run late, as time is not a major factor for them in a meeting. If you’re the type of person who is normally direct, tone it down so as to not seem too assertive. The Croatians would be considered high context as they are very direct and straight forward, but as an outsider you do not want to be too direct. “Despite how an outsider may perceive this type of communication, causal and insignificant conversation is important because it reflects the desire to build a relationship and create trust. (Cross Border Commerce) This is a perfect example of how the Croatians view conversation when meeting someone for the first time or later on in the relationship, their goal is to get to know the individual they are dealing with. Once you have a built a personal relationship with the Croatians it is something that will last for a long time. One of the important factors to consider when working in another country is the preferred managerial styles as it will determine how one approaches the working environment. Another factor that needs to be discussed is dealing with conflicts in the workplace. When dealing with a conflict in the office it’s best to get someone else’s opinion on the situation. If it’s determined that you need to speak with that individual do it in a private setting and do not use an accusing verbiage or tone as, “Croatians have a strong sense of superiority and do not think that a foreigner can handle the issues on their territory as well as they can.” (Cultural Information - Conflicts in the Workplace)

HOW ARE THESE ELEMENTS AND DIMENSIONS INTEGRATED BY LOCALS CONDUCTING BUSINESS IN THE NATION?
TOURISM IN CROATIA Tourism. Tourism is one of the greatest incomes for Croatia it’s 22% of their GDP. They have over 10 million visitors per year. The goal is to improve its infrastructure to help bring in more Tourism. The issue is that Croatia is still in a recession and the object is to bring in more private and public funding to help beautify their coastlines. Croatia has few natural resources with the exception of the coastline hence the reason they need to use it to their advantage. The Aus Austria’s Erst Group has “put up [Euro]19 million for the expansion of the international terminal at Dubrovnik airport, and shortly after the European Bank for Reconstruction and Development announced at its annual general meeting in the Croatian capital Zagreb that it had granted a [Euro]12 million loan to expand the port of Sibenik. Tourism in Croatia accounts for roughly one-fifth of its GDP, which makes investing in it a key priority" (Croatia: Tourism investment crucial to economic recovery) The reasoning behind upgrading the airports is to allow easy access to the country is to help increase the tourism. Croatia also has one of the best natural resources compared to its neighboring countries which is the coastline and it’s great for the importing and exporting as it is convenient for the ships, and of course the tourism. The aspirations of the Croatian government is to develop the coastline to increase the tourism in which the end state would increase the GDP. People from all over the world come to visit Croatia’s coastline, especially the Europeans. I too have had the opportunity to visit and it was one of the most beautiful beaches I have ever seen. The Croatian government plans on upgrading the infrastructure along the coastline one area at time, giving the tourist more options for vacationing.

AGRICULTURE IN CROATIA Importance of Agriculture. Agriculture is another commodity that Croatia has that adds to the GDP. Croatia agriculture product list: arable crops (wheat, corn, barley, sugar beet, sunflower, rapeseed, alfalfa, clover); vegetables (potatoes, cabbage, onion, tomato, pepper); fruits (apples, plum, mandarins, olives), grapes for wine; livestock (cattle, cows, pigs); dairy products. (Agriculture – products) Croatia has three types of land that can be divided into climatic zones: the North Country, the coastal region, and the mountainous area. The different types of land will determine as to what can be grown, hence the reason they offer so many different products. There are a multitude of Fisheries also known as Aquaculture along the Adriatic coastline, which contributes to the GDP. Croatia is known for its specialty fish which are: Srdela (Pilchard), Papalina (Sprat), Inćun (Anchovy), Šnjur (Horse mackerel), and Tuna (Tunny), (Croatian fish) these are the most typical fish that you would find in a restaurant. Between the agriculture and fishing creates 8.1% of the GDP, which is not a large percentage but is still a contribution.

MAIN INDUSTRY SECTORS
“The Croatian industry is concentrated in competitive activities: chemicals and plastics, machine tools, fabricated metal, electronics, pig iron and rolled steel products, aluminum, paper, wood products, construction materials, textiles, shipbuilding, petroleum and petroleum refining, food and beverages, tourism textiles, wood, the steel industry, aluminum and the food industry.” (CIA World Factbook) Croatia land includes one-third of forests, making the wood industry one of the leading industries in Croatia. The industry GDP was 24.9% in 2012 according to the CIA World Factbook. The manufacturing companies for these products employee at least 10,000 people which helps with the un-employment rates.

HOFSTEDE’S DIMENSIONS OF CULTURE FOR CROATIA Dimensions of Culture. The Croatian Culture using Hofstede’s Dimension of Culture is used to determine how culture relates to individuals in their areas of employment. Hofstede has set up a score chart for each dimension ranging from 0-100. Each score will reflect how Croatians handle certain culture influences in the workplace. Officially there are four dimensions, a fifth was added at a later date. The first is power distance which they score high at 73, meaning that individuals are willing to consent to the hierarchical order given in their jobs. Basically they except and know who their leadership is and have no problem executing the duties required of them, even if it’s unequal. If the number is low it would mean that equality is something they require. The next is individualism which they only scored a 33, meaning they are a type of collectivistic society that holds long term relationships very seriously. As I said earlier they are a high context society, meaning that long term relationships are essential. Fundamentally they are held accountable for everything that an individual may do right or wrong. If the score had been high it represents that they would be individualistic, with a greater amount of unattached relationships. The following is Masculinity/Femininity with a score of 40, which means they are considered fairly feminine society. A high score is considered Masculine which means they would have been competitive. “In feminine countries the focus is on “working in order to live”, managers strive for consensus, people value equality, solidarity and quality in their working lives.” (What about Croatia Masculinity / Femininity) Instead they are the type that are concerned for the wellbeing of others. There not about status it’s about compromise and working together. The next is uncertainty avoidance where they scored 80, which means the Croatians completely avoid uncertainty. They need and want rules and guidance to follow to ensure they are secure in their lives. If the number was low it would reflect uncertainty, they are not concerned about ambiguity, and they are willing to listen to opinions. The final is long term orientation which was not rated for Croatia. If the score is high it means that individuals are devoted to their tradition and heritage and they take their jobs seriously. If it’s low then society does not keep their traditions and heritage and they do not have an issue with adapting to changes in their society.

HOW DO BOTH OF THE ABOVE ITEMS COMPARE WITH THE US CULTURE AND BUSINESS?

ETHICS IN A BUSINESS ENVIRONMENT
Ethics in the business environment. It is well known that there are difficulties in dealing with the different culture aspects in the international business explicitly the Code of Ethics and decision making. When comparing the US and Croatia management styles using the Hofstede dimensions there is a great difference in the decision making process when handling whistleblowing. Its common knowledge that countries follow their own code of ethics, granted most are very similar. If you consider the Hofstede’s dimensions of culture it will be easier to understand how Croatia would deal with a whistleblowing case. “Management can use the predictors to account for various cultural norms and mores with the result that modified SOP's or standard operating procedures are developed that encourage internal reporting that may otherwise not have occurred.” (Culture and whistleblowing)
In comparing the US and Croatia they were on opposite sides of the spectrum for each of the four dimensions, (fifth was not used in the study). Therefore the management styles of the US and Croatia are very different based on the study of dimensions of culture. The point of the study was to determine if Croatia would likely be a whistleblower. Because we already know how Croatia rated in all four dimensions we know that they except who their leadership is, they believe in long term relationships, and they are considered as feminine therefore not competitive and believe in working together, and finally they avoid uncertainty. If you analyze all the above you realize that Croatia would not be the type to be a whistleblower. In conclusion the US is the total opposite therefore they would have no issue being a whistleblower. Using Hofstede dimensions of culture is a great tool as it clearly measures the possibilities of being a whistleblower and other management styles.

USING FOREGIN DIRECT INVESTMENT IN CROATIA
Foreign Direct Investment, (FDI) The Croatian economy would benefit greatly from Foreign Direct Investment. They want to use Croatia as “within the context of FDI into transition economies and review the motivation of foreign investors. The costs and benefits of FDI, both financial and real, are reviewed, and we then examine the sectorial structure of FDI into Croatia in the light of these costs and benefits” (Challenges for the Croatian Economy) Foreign Direct Investment is a Global essential for businesses, and it has impacted the economy worldwide positively. It’s noted that the Foreign Direct Equity has positively affected Croatia from 1993-2002 it shows that telecommunication was up to 27.10 percent. The greater amount of FDI the better opportunities Croatia will have to recover from the recession. To date Austria is the single largest investor with 643.2 million euro in 2011 and Luxembourg came up with 171.3 million. The problem is that “Foreign direct investment (FDI) in Croatia fell to 973.3 million euro in 2012, preliminary data from the country’s central bank indicated on Tuesday, SeeNews reported. Croatia attracted FDI worth 1.08 billion euro in 2011, according to final data from the central bank.” (Foreign direct investment (FDI) Croatia government is committed to opening itself to FDI by offering incentives: low administrative fees, special laws, and special tax breaks. The reports state that It will take time as they further develop their countries infrastructure.

CROATIAN TRADING IMPORTS AND EXPORTS
Exports and imports. Croatia has been a member of the World Trade Organization, (WTO) since 2000, and then in 2001 they signed the Agreement of Association with the European Union. “Croatia exports: transport equipment, textiles, chemicals, foodstuffs, and fuels. Their export partners: Italy 21.8%, Bosnia and Herzegovina 14.7%, Germany 10.7%, Slovenia 8.1%, Austria 7.3% It imports machinery, transport and electrical equipment, chemicals, fuels and lubricants, foodstuffs. Their import partners: Italy 15.9%, Germany 14.9%, Russia 9.1%, Slovenia 6.8%, Austria 5.8%, China 4.7%, France 4.2%” (Facts about Croatia) Croatia problem is that their trade balance is continually in a deficit. Below is a graphical representation of the Trade imbalance.

Retrieved from: Trading economic.com-Croatia’s Balance of Trade-Numbers are in the millions

All numbers are in the millions of HRK. If you notice Croatia had a -5074.029 deficit in March of 2013. The deficit has increased since July of 2012. Their economy continues to decline causing a greater recession. Not only is the balance of trade an issue, they also have poor employment rates. Unemployment. In reading the graphical representation below you can see that another issue that plagues Croatia is there unemployment rates. Over the past three years the rates have continued to rise with the exception of March 2013 where is decreased to 368,558 unemployed individuals, when February numbers were 375,400 unemployed individuals. The cause of unemployment in Croatia is due to the different industries being shut down due to shortage of funding, lack of education, young people lacking work experience, and shipping docks closing down, which normally employee between 5,000-10,000 people.

Retrieved from: Trading economic.com- Croatia Unemployed persons

CROATIA’S CURRENT ECONOMIC STATUS
Recession. It’s quite obvious that based on the statics above that Croatia is and has been in a recession for the past four years. There is not just one single factor that has caused Croatia to be in a recession, it’s been a culmination of many issues, such as the trade deficit, high unemployment rates, cuts in public sending, and increase on the Valued Added Tax, (VAT). Croatia’s GDP continues to be in the negative. In reviewing the graphical representation below it shows that in 2010 they were in a significant downfall. In January 2012 they come up slightly but once again fell into the negative numbers at the end of the year.

Retrieved from: Trading economic.com- Croatia GDP Annual Growth Rate

WHAT ARE THE IMPLICATIONS FOR US BUSINESS THAT WISH TO CONDUCT BUSINESS IN CROATIA?
European Union. Croatia is scheduled to formally become a member of the European Union (EU) 1 July 2013, assuming the Croatian Accession treaty gets ratified. Once Croatia becomes an EU member it will open up multiple opportunities for them in the markets worldwide. They will no longer be required to do the “product double testing and custom clearances when distributing good and service between the EU countries.” (Doing Business in Croatia) This will give the United States added market prospects with Croatia because it will no longer be required to do the managerial obligations. The Croatians were also dealing with corruption which caused market losses but with the entrance to the EU it should help elevate a lot of those matters. With Croatia’s “ports and transportation infrastructure make it a natural trade gateway for multiple possibilities. “In brief, Croatia is a market of opportunity, but one that should be entered with due diligence. The U.S. Commercial Service is ready to help U.S. firms enter and succeed in this growing market.” (Doing Business in Croatia)

CROATIA'S MINISTRY OF ENTREPRENEURSHIP Innovation. The innovations and investments that need to be made in the future for “Croatia's Ministry of Entrepreneurship and Crafts has announced a package of measures, entitled "Entrepreneurial Impulse", intended to stimulate entrepreneurship and job creation for 4,000 people, Croatia’s Ministry of Entrepreneurship and job creation.” (From the Economist intelligence unit) The goal is to stimulate the economy by assisting entrepreneurship and investing in technology, motivating expansions, by introducing “25 new non-refundable subsides.” (From the Economist intelligence unit) The program will cost the Croatia government around $66 million. Gordan Moras the entrepreneurship minister has authorized new credit lines. The Croatian banks are willing to give low interest rates, 1-3% for your first entrepreneurial businesses. The purpose for all these packages is to help stimulate new businesses and the economy in Croatia. This entrepreneurship is open to any countrymen to include the United States.
FUTURE OF CROATIA 2020 Future Technology. There is now a future for Croatia 2020, once Croatia enters the UN. The goal is to assist Croatia in getting to the multimedia platform that includes all the social elites by the end of the decade. It is specializing in the IT world which includes Croatian Microsoft, IBM, and Google, the American companies. The goal is to highlight key players in the Croatian IT and ICT world. The importance is that it is encouraging the IT sector to be the “strategic branches of the Croatian economy, and it also points out that success is possible in the face of the crisis and an adverse economic environment.” (A vision of European Croatia)

UNITED STATES INVESTING IN CROATIA
Investing. It is called the American Chamber of Commerce in Croatia, and they are willing to do what it take to help Croatia. “It is a non-profit, independent non-governmental organization with over 150 members. Its goals is to foster ties between Croatia and the United States through trade and investment, strengthen partnership between the business community and the Croatian government at all levels, facilitate cooperation among members and promote regional trade and pan-European cooperation.” (American Chamber of Commerce in Croatia) The organization is dedicated to helping Croatia work hand in hand with the US. Their vision is to assist Croatia by growing the transatlantic teamwork by being the foremost business organization to contribute significantly to their restructuring. Their mission is to ensure that they provide the best business practices while developing better business prospects and presenting the best levels of social business networking. Other purposes for this organization are to build social networking by giving the Croatians and Americans an opportunity to share innovations, ideas, knowledge, suggestions for business plans and augment an international working relationship.
U.S. RELATIONS WITH CROATIA
Team Effort. The United States and Croatia established diplomatic relations back in 1992, after it declared its independence from Yugoslavia. (U.S. Relations with Croatia) Croatia and the United States have been working together for years developing a stronger partnership. The US has assisted Croatia in becoming a secure market-orientated society, and are working toward a positive operational relationship with its fellow countries such as Southeastern Europe. Their goals are to work together on the regional and global trials and tribulations and to ensure smooth trading in exports and imports. After the 1991-1995 war Croatia partnered with the US by preventing the propagation of weapons. The US has also assisted Croatia in training its military and providing equipment, and loans to purchase new equipment. “The US and Croatia have a bilateral investment treaty and investment protection agreement. With Croatia's EU accession, U.S. companies exporting to the EU will have an additional market opportunity.” (U.S. Assistance to Croatia) It’s obvious that the United States and Croatia have made great strides in improving bilateral relations. In conclusion Croatia has a long road ahead of them. If they implement the plans that have been set before them they should be able to come out of the recession and be top competitors in the European Union.

References
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About Croatia www.hr-Croatian homepage since 1994, retrieved from: http://www.hr/croatia Centre for Intercultural Learning http://www.intercultures.ca/cil-cai/ci-ic-eng.asp?iso=hr#cn-1 Cross Border Commerce; Brain C. Satterlee; 2009
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Croatia Economy SOURCE: 2013 CIA WORLD FACTBOOK AND OTHER SOURCES. 2013 http://www.theodora.com/wfbcurrent/croatia/croatia_economy.html
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Foreign direct investment (FDI) in Croatia fell to 973.3 million euro in 2012 http://www.balkans.com/open-news.php?uniquenumber=173042 Facts about Croatia http://worldfacts.us/Croatia.htm Croatia Balance of trade http://www.tradingeconomics.com/croatia/balance-of-trade Doing Business in Croatia, Croatia 2012 Country Commercial Guide – Market Overview retrieved from: http://zagreb.usembassy.gov/doing-business-local.html
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http://www.state.gov/r/pa/ei/bgn/3166.htm

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