1. Introduction In this paper we will discuss reasons forthe formation of international joint ventures and possible ways for them to beunsuccessful – the main one of which being cultural differences in workersrelations.
We will look into the drawbacks of having employees from differentnations, taking into account various barriers, such as different language, timezone, corporate structure and culture itself. Three international jointventures, all of which closed by now, will be analysed, two of whichunsuccessful and one of which successful, to illustrated possible issues due tocultural differences and ways to overcome them:- Wall-Martand Bharti Joint Venture;- Danoneand Wahaha Joint Venture;- Sonyand Erricson Joint Venture.Each of the case studies will present thereasons for the venture’s formation, what difficulties it had to overcome andhow well did the managers deal with them. As a conclusion, the differences betweenthe case studies and the similarities will be evaluated, giving possible waysto deal with the drawbacks of cultural differences in multinationalenterprises. 2.
International Joint VenturesInternational Joint Ventures occur when apartnership is formed between two or more companies from different countries sothat one of them can explore the opportunities of expanding on a new marketwithout taking full responsibilities of cross-border transactions or so that acompany can improve its manufacturing capacities and outsource production. (Cf.Wikipedia (ed.) (10.
04.2017)) 2.1. Reasonsfor formation It is hard to describe what culture reallyis, as it is everywhere around us.
We can find it in our clothes, books andcuisine. It forms our values and beliefs, often changing the habits we have andthe way we think and work. It shapes the products we like and buy, making agood, which turned out to be successful in one country, often hard to bepresented in another. That is why when big companies want to expand theirpresence on the global market they often form International Joint Ventures withother companies – with intentions to overcome various intercultural barriers whilesaving money and time, as well as benefit from brand awareness and consumertrust.Sometimes the reason for internationaljoint ventures may not be increasing market share, but finding new ways tooutsource production or gain new technological now-how, improving the product acompany offers. It is a profitable situation for both sides if executedproperly, as the enterprise can combine sustainable production with brandawareness and therefore complete the product cycle, greatly increasing profits.However, many international joint venturesare destined to fail, as it is not only the new customers that have differentculture, but also the company employees.
If poorly managed, various issues canarise – starting from poor integration and raging to the hardest aspect toovercome – mistrust between managers in different regions. In order to beprepared in advance, a leader should be familiar with the drawbacks of culturaldifferences in term of workers relations. (Cf. Wikipedia (ed.) (10.
04.2017)) 2.2. Drawbacksof cultural differences in workers relations As international joint ventures are oftenmade between companies of distant countries, the contrast in the worker’sethics can be severe. They occur rarely because of religion and more often dueto one country being monochronic and the other – polychronic. On one handrepresentatives of monochronic societies will tend to focus on one task at atime and have a big respect for appointments and deadline. On the other handpeople from polychronic cultures will do multiple jobs and a time and havelittle to no respect for time. Although highly accurate for most, this is astereotypical view and is not valid for every person coming from one of thosetypes of culture.
Common issues for international jointventures are also different time zones, resulting in low coordination on tasksand long response time and language barries, leading to misunderstanding. Oftendifferent geographical regions have various corporate structures and cultures,which can create tension for employees – someone, who is used to liberalcorporate style will find it hard to work under authoritative leadership. Ifmanaged properly and, an international joint venture could succeed, but in 50to 70% of the time it will fail. (Cf.
Vadim Kotelnikov) 2.3. Casestudy 1 – Walmart and Bharti Wal-Mart, as one of the biggest retailcompanies in the world and currently the most successful in the U.S., is alwaystrying to expand the organization’s global footprint by spreading theiroperations in different countries.
This is where India comes into act – theAsian country remains as one of the best-untapped sources for internationalcompanies to grow market share and future profit. However, between the U.S.
market and the Indian one there are many differences which stand on Wal-Mart’sway. Currently the Indian’s market is a stagewhere customers are used to buying goods from specialized stores – Kiranas andMandis to name a few. Mandis stores stores are created by the government aslocations for local farmers to sell their agricultural production directly tothe customer. In Kirana stores, which are independently owned, one can findnecessities and groceries. The other retailing formats to which consumers areused to include streetcars, pavement shops, public distribution systems, kiosksand weekly markets. In recent years India has seen modern large-scale storesemergence, but they result in only 2% of all retail sales nationwide. (CfVijaykumar Nishad, 2016) In combination with the bad condition ofthe Indian infrastructure, this way of shopping makes it impossible forWal-Mart to apply the same strategy they use in U.S.
with the same success. Thatis why the retail company forms and International Joint Venture with a localconglomerate – Bharti Enterprises. The Indian company knows the people’spreferences for shopping and has already proven to be prosperous in this field.However, as with any international joint venture, there is a big chance offailure due to many reasons, one of which Wal-Mart’s ambition to not discloseany of their logistics know-hows and Bharti’s wish to find out how did the U.
S.retailer get so big.Apart from company secrets there is thealso the issue of cultural barrier not in the market, but in the company. Indiais a polymorphic, collectivistic society, whereas USA is a monomorphic,individual one. The Indians are accustomed to taking care of others, even whenthis means being late on deadlines, whereas Americans would tend to putemphasis on work instead of people.
Furthermore, the later focus all theirefforts on one task, while the South Asians can easily distract between manythings at the same time. Last but not least, the contrasting time zones alsohave a great effect on the result of the venture, as there is a 13 hoursdifference between New Delhi and New York. As a result of all the culturedifference, the Walmart and Bharti International Joint Venture was put to anend in October 2013, 6 years after its formation. (Cf. Sunainaa Chadha 2014) 2.4. Casestudy 2 – Danone and Wahaha Corporate China in the 1990s saw manyfailed joint ventures between multinational and local companies, but some ofthem were held as stories of great success. One such example is theinternational joint venture between Danone and Wahaha, which lasted from 1996to 2007.
However, the reasons for the enterprise’s end were obvious – they werein the cultural differences.Wahaha began business back in 1988 whenZong Qinghou, a farmer, began selling dairy products next to a school shop.Following his entrepreneurial nature, he grown the company and soon moved tobottled water in 1996. It was at that time when Danone, one of the world’slargest food conglomerates, begun looking for a way to expand their marketshare by spreading their products to new countries. China’s economy wasexponentially growing and seemed like the perfect option for the Frenchcompany. This resulted in a deal for an international joint venture betweenDanone and Wahaha, with the first taking 51%, and the Chinese partners having49%. This approach would be toxic for the partnership in the future.
However, everything seemed a good fit atfirst. Danone brought capital and product research and combining it withWahaha’s local knowledge both sides profited well. The Chinese company becamethe leading brand in the water market, and accounted for 5% of Danone’s profitsin 2006. (Cf. Geoff Dyer, 2007)As the businesses expanded and became morecomplex, the French conglomerate had several unsuccessful attempts to buy outWahaha. Soon a legal battle followed over a trademark dispute, with both sidesdeciding to suspend their demands and resume negotiations.
(Cf. Wikipedia, 2017)The failure of the international jointventure wasn’t a matter of ifs, but of time due to the huge culturaldifferences. French companies tend to a liberal corporate culture, allowing itsemployees to express opinion about day-to-day decisions and the leaders areoften seen as equals. That is not the case for most Chinese companies, where wecan see a more authoritative style – workers rarely reveal their attitudetowards the manager’s choices. In the international joint venture betweenDanone and Wahaha the later company had control over the day-to-day operations,for which Mr. Zong was responsible. His employees rarely questioned hisdecisions and at the same time the French workers opinions were rarely valued. However,as the European company had 51% ownership, the result of every action wasquestioned.
This created a huge gap of misunderstanding between the partners. Thetime difference of 17 hours made things even worse for the partnership, ascommunication could hardly be sustained.Furthermore, as France has anindividualistic culture, employees tend to separate work from their personallife and can rarely be manipulated. On the other hand, China is acollectivistic country and people often combine their job and their life, whichsometimes can lead to corruption. That was the case with Danone and Wahaha’spartnership, which ended with allegations for corruption coming from the Frenchconglomerate.
(Cf. Wikipedia (2017)) 2.5. Casestudy 3 – Sony and Ericsson Ericsson was founded inSweden 142 years ago as a telephone equipment manufacturer and seller. In theearly 1990s the company partnered with General Electric in order to establishpresence and brand recognition on the American market.
The Swedish companyobtained the chips for the phones from a facility in New Mexico, which wastheir only source at the time. On March 17, 2000 at the factory resulted in adelay, which the manufacturer assured would last for no more than a week. Afterit became clear that production would be slowed down for months, and Ericssonhas already accumulated huge losses, the company considered outsourcingproduction to Asian companies, which would also lower costs. Duringthat time Sony was a small marginal player in the mobile telephone market,having less than 1% share in 2000. In 2001 an international joint venturebetween Sony and Ericsson has been established with main focus on mobile phoneproduction.
Sony’s main motivator was Ericsson’s brand recognition, marketshare and excellent technical wireless expertise. The main competitor at thetime to the venture was Nokia Corp., which was offering consumers low-cost mobile devices and had 30.6% share ofthe telephone market (Cf. GartnerDataquest, Feb 2001). Sony and Ericsson, combined, were aiming to offera product more technologically innovative than every other device available backthen. In case of a successful merge, thebenefits for the Swedish company would be significant, gaining access to Sony’sproduction and design.
However, there were several potentialproblems to the venture’s prosperity, as the company cultures were reallydifferent – Sony, as a Japanese firm, had authoritative style, where themanager took all the important decisions by himself, in contrast to SwedishEricsson’s liberal style, where every opinion mattered. Furthermore, comingfrom a collectivistic society, the Asian company would often combine people’spersonal lives with their job, whereas when the European employees separatedwork from leisure time. On top of this many suggested that the enterprise wouldrequire difficult collaborations so that progress could be made, which wouldprobably reflect in conflicts and bad management. Many problems aroused afterthe joint venture formation, such as product delays and logistic issues, causedby miscommunication due to cultural differences. To deal with this, managershad to understand the different corporate cultures and respect them. Poor trustresulted in bad supply chain management, which caused increase in transaction,material and service costs. Eventually products would delay and profit loseswould grow.
Although it was a very hard task to the,managers from both companies found a way to compromise on differences andrespect their corporate and social cultures. As a result the Sony-Ericsson’sinternational joint venture turned out to be successful and ended on February16, 2012, with Sony acquiring all of the enterprise’s shares. Afterwards SonyEricsson was renamed to Sony Mobile Communications Inc. and is the fourthlargest smartphone manufacturer in the world nowadays. (Cf.
ed Wikipedia, 2018) 3. Conclusion As globalization keeps spreading acrossthe globe international joint ventures will be more often formed. Technologywill probably help managers solve the language barriers, but culture itselfcannot be easily translated. The main issues, observed in the three casestudies, will always remain present – different corporate styles will haveeffect on what employees expect from their work place and how to behave whilepresent there. Time zones will most likely stay the same in the future, so evenusing the fastest internet connection the problem of communicating acrosscontinents will be persistent one – with half the enterprise at work, while theother half asleep.
Tension, caused by the exploitation of one of the companies,will be felt among all members.To successfully overcome all the possibleproblems a manager will have to fully understand the differences of distantcultures and address them on time. Carefully managed transition from a localcompany to an international joint venture will be the first step. Making sureall the employees are aware of the way people from other cultures work andthink will greatly reduce stress and unfulfillment due to miscommunication. The second step would be to establishtrust among the newly formed partners, so that every process can move smoothly.If every action has to be monitored, workers would not feel safe and the speedof task fulfilment will be slow. Before everything else – countries,currencies, fortune 500 companies, comes trust.
It is the basis of humanrelations and without it no international joint venture can be successful.The last step would consist of maintainingthe already achieved synarchy. If any issues come to the managers, they shouldresolve them quickly, ignoring cultural background in case of human error.Analysing mistakes and preventing the same ones from occurring again iscrucial, so that in case of any new ones employees will report them in a quickmanner without fear.
It is fear that can prevent success. Agood manager will know that after an international joint venture is formed,workers will be afraid for their jobs. Pursuing the best results, some of themmight seek possible mistakes not in themselves, but in their new colleagues. Ifall the cultural differences are carefully presented, every possiblemisunderstanding is addressed in advance and fear is no longer present,everyone will focus on fulfilling the companies milestones. The very basis of cultural differences isthe way we think and see the world, leading us to be deeply afraid of other’smindset.
Overcoming this helps everyone of us judge other people’s actions anddecisions not from a national viewpoint, but from a human one – ultimatelyunderstanding that we are all the same and we can make every big internationaljoint venture work out, as long as we keep an open mind and focus our effortsfor the same goal.