1. one country, often hard to be presented in

1.   
Introduction

 

In this paper we will discuss
reasons for the formation of international joint ventures and possible reasons
for them to be unsuccessful – of which the main one cultural differences in
workers relations. The drawbacks of having employees from different nations
will be analysed, considering various barriers, such as different language,
time zone, corporate structure and culture itself. Three international joint
ventures, all of which ended by now, will be analysed:

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–       Wall-Mart
and Bharti Joint Venture;

–       Danone
and Wahaha Joint Venture;

–       Sony
and Erricson Joint Venture.

Two of which unsuccessful and
one of which arguably successful, in order to illustrated possible issues due
to cultural differences and ways to overcome them. Each of the case studies
will look into the reasons for the venture’s formation, what difficulties it
had to overcome and how well did the managers deal with them.

As a conclusion, the
differences between the case studies and the similarities will be evaluated,
giving possible ways to deal with the drawbacks of cultural differences in
multinational enterprises.

 

2.   
International
Joint Ventures

International Joint Ventures
occurs when a partnership is formed between two or more companies from
different countries so that one of them can explore the opportunities of
expanding on a new market with taking full responsibilities of cross-border
transactions or so that a company can improve its manufacturing capacities. (Cf.
Wikipedia (ed.) (10.04.2017))

 

 

2.1.       
Reasons
for formation

 

It is hard to describe what
culture really is, as it is everywhere around us. We can find it in our
clothes, books and cuisine. It forms our values and beliefs, often changing the
habits we have and the way we think and work. It shapes the products we like
and buy, making a good, which turned out to be successful in one country, often
hard to be presented in another. That is why when big companies want to expand
their presence on the global market they often form International Joint
Ventures with other companies – with intentions to overcome various
intercultural barriers while saving money and time, as well as benefit from
brand awareness and consumer trust.

Sometimes the reason for
international joint ventures may not be increasing market share, but finding
new ways to outsource production or gain new technological now-how, improving
the product a company offers. It is a profitable situation for both sides of
executed properly, as the enterprise can combine sustainable production with
brand awareness and therefore complete the product cycle, greatly increasing
profits.

However, many international
joint ventures are destined to fail, as it is not only the new customers that
have different culture, but also the enterprise employees. If poorly managed,
various issues can arise – starting from poor integration and raging to the
hardest aspect to overcome – mistrust between managers in different regions. In
order to be prepared in advance, a leader should be familiar with the drawbacks
of cultural differences in term of workers relations. (Cf. Wikipedia (ed.) (10.04.2017))

 

 

2.2.       
Drawbacks
of cultural differences in workers relations

 

As international joint
ventures are often made between companies of distant countries, the contrast in
the worker’s ethics can be severe. They occur rarely because of religion and
more often due to one country being monochronic and the other – polychronic. On
one hand representatives of monochronic societies will tend to focus on one
task at a time and have a big respect for appointments and deadlines, whereas
people from polychronic cultures will do multiple jobs and a time and have
little to no respect for time. Although highly accurate for most, this is a
stereotypical view and is not the

valid for every person coming
from one of those types of culture.

Common issues for
international joint ventures are different time zones, resulting in low
coordination on tasks and long response time and language barries, leading to
misunderstanding. Often different geographical regions have various corporate
structures and cultures, which can create tension for employees – someone, who
is used to liberal corporate style will find it hard to work under
authoritative leadership. If managed properly and, an international joint
venture could succeed, but in 50 to 70% of the time it will fail. (Cf. Vadim
Kotelnikov)

 

 

 

2.3.       
Case
study 1 – Walmart and Bharti

 

Wal-Mart, as one of the
biggest retail companies in the world and currently the most successful in the
U.S., is always trying to expand the organization’s global footprint by
spreading their operations in different countries. This is where India comes
into act – the Asian country remains as one of the best-untapped sources for
international companies 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’s way.

Currently the Indian’s market
is a stage where customers are used to buying goods from specialized stores –
Kiranas and Mandis to name a few. Mandis stores stores are created by the
government as locations for local farmers to sell their agricultural production
directly to the customer. In Kirana stores, which are independently owned, one
can find necessities and groceries. The other retailing formats to which
consumers are used to include streetcars, pavement shops, public distribution
systems, kiosks and weekly markets. In recent years India has seen modern
large-scale stores emergence, but they result in only 2% of all retail sales
nationwide. (Cf Vijaykumar Nishad, 2016)

In combination with the bad
condition of the Indian infrastructure, this way of shopping makes it
impossible for Wal-Mart to apply the same strategy they use in U.S. with the
same success. That is why the retail company forms and International Joint
Venture with a local conglomerate – Bharti Enterprises.

The Indian company knows the
people’s preferences for shopping and has already proven to be prosperous in
this field. However, as with any international joint venture, there is a big
chance of failure due to many reasons, one of which Wal-Mart’s ambition to not
disclose any 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 the also the issue of cultural barrier not in the market, but in the
company. India is a polymorphic, collectivistic society, whereas USA is a
monomorphic, individual one. The Indians are accustomed to taking care of
others, even when this means being late on deadlines, whereas Americans would
tend to put emphasis on work instead of people. Furthermore, the later focus
all their efforts on one task, while the South Asians can easily distract
between many things at the same time. Last but not least, the contrasting time
zones also have a great effect on the result of the venture, as there is a 13
hours difference between New Delhi and New York. As a result of all the culture
difference, the Walmart and Bharti International Joint Venture was put to an
end in October 2013, 6 years after its formation. (Cf. Sunainaa Chadha 2014)

 

 

 

2.4.       
Case
study 2 – Danone and Wahaha                        

 

Corporate China in the 1990s
saw many failed joint ventures between multinational and local companies, but
some of them were held as stories of great success. One such example is the
international joint venture between Danone and Wahaha, which lasted from 1996
to 2007. However, the reasons for the enterprise’s end were obvious – they were
in the cultural differences.

Wahaha began business back in
1988 when Zong Qinghou, a farmer, began selling dairy products next to a school
shop. Following his entrepreneurial nature, he grown the company and soon moved
to bottled water in 1996. It was at that time when Danone, one of the world’s
largest food conglomerates, begun looking for a way to expand their market
share by spreading their products to new countries. China’s economy was exponentially
growing and seemed like the perfect option for the French company. This
resulted in a deal for an international joint venture between Danone and
Wahaha, with the first taking 51%, and the Chinese partners having 49%. This
approach would be toxic for the partnership in the future.

However, everything seemed a
good fit at first. Danone brought capital and product research and combining it
with Wahaha’s local knowledge both sides profited well. The Chinese company
became the leading brand in the water market, and accounted for 5% of Danone’s
profits in 2006. (Cf. Geoff Dyer, 2007) As the businesses expanded and became
more complex, the French conglomerate had several unsuccessful attempts to buy
out Wahaha. Soon a legal battle followed over a trademark dispute, with both
sides deciding to suspend their demands and resume negotiations. (Cf.
Wikipedia, 2008)

The failure of the
international joint venture wasn’t a matter of ifs, but of time due to the huge
cultural differences. French companies tend to a liberal corporate culture,
allowing its employees to express opinion about day-to-day decisions and the
leaders are often seen as equals. That is not the case for most Chinese
companies, where we can see a more authoritative style – workers rarely reveal
their attitude towards the manager’s choices.

In the international joint
venture between Danone and Wahaha the later company had control over the
day-to-day operations, for which Mr. Zong was responsible. His employees rarely
questioned his decisions 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 was questioned. This created a huge gap of misunderstanding
between the partners. The time difference of 17 hours made things even worse
for the partnership, as communication could hardly be sustained.

Furthermore, as France has an
individualistic culture, employees tend to separate work from their personal
life and can rarely be manipulated. On the other hand, China is a collectivistic
country and people often combine their job and their life, which sometimes can
lead to corruption. That was the case with Danone and Wahaha’s partnership,
which ended with allegations for corruption coming from the French
conglomerate.

 

 

 

 

2.5.       
Case
study 3 – Sony and Ericsson

 

Ericsson was
founded in Sweden 142 years ago as a telephone equipment manufacturer and
seller. In the early 1990s the company partnered with General Electric in order
to establish presence and brand recognition on the American market. The Swedish
company obtained the chips for the phones from a facility in New Mexico, which
was their only source at the time. On March 17, 2000 at the factory resulted in
a delay, which the manufacturer assured would last for no more than a week.
After it became clear that production would be slowed down for months, and
Ericsson has already accumulated huge losses, the company considered
outsourcing production to Asian companies, which would also lower costs. During
that time Sony was a small marginal player in the mobile telephone market,
having less than 1% share in 2000.

In 2001 an international joint
venture between Sony and Ericsson has been established with main focus on
mobile phone production. Sony’s main motivator was Ericsson’s brand
recognition, market share and excellent technical wireless expertise. The main
competition at the time to the venture was Nokia Corp., which at the time was
offering consumers low-cost mobile devices and had 30.6% market share (Cf. Gartner Dataquest, Feb 2001). Sony
and Ericsson, combined, we aiming to offer a product more technologically
innovative than every other device available at the time.  In case of a successful merge, the benefits
for the Swedish company would be significant, gaining access to Sony’s
production and design.

However, there were several
potential problems to the venture’s prosperity, as the company cultures were
absolutely different – Sony, as a Japanese firm, had authoritative style, where
the manager took all the important decisions by himself, in contrast to Swedish
Ericsson’s liberal style, where every opinion mattered. Furthermore, coming from
a collectivistic society, the Asian company would often combine people’s
personal lives with their job, whereas when the European employees separated
work from leisure time. On top of this many suggested that the enterprise would
require difficult collaborations so that progress could be made, which would
probably reflect in conflicts and bad management. Many problems aroused after
the joint venture formation, such as product delays and logistic issues, caused
by miscomunication due to cultural differences. In order to deal with this,
managers had to understand the different corporate cultures and respect them.
Poor trust resulted in bad supply chain management, which caused increase in
transaction, material and service costs. Eventually products would delay and
profit loses would grow.

Although it was a very hard
task to the, managers from both companies found a way to compromise on
differences and respect their corporate and social cultures. As a result of
that the Sony-Ericsson’s international joint venture turned out to be
successful and ended on February 16, 2012, with Sony acquiring all of the
enterprise’s shares. Afterwards Sony Ericsson was renamed to Sony Mobile
Communications Inc. and is the fourth largest smartphone manufacturer in the
world nowadays. (Cf. ed Wikipedia, 2018)

 

 

3.    
Conclusion

 

As globalization keeps
spreading across the globe international joint ventures will be more often
formed. Technology will probably help managers solve the language barriers, but
culture itself cannot be easily translated. The main issues, observed in the
three case studies, will always remain present – different corporate styles
will have effect on what employees expect from their work place and how to
behave while present there. Time zones will most likely stay the same in the
future, so even using the fastest internet connection the problem of
communicating across continents will be persistent one – with half the
enterprise at work, while the other half asleep. Tension, caused by the
exploitation of one of the companies, will be felt among all members.

To successfully overcome all
the possible problems a manager will have to fully understand the differences
of distant cultures and address them on time. Carefully managed transition from
a local company to an international joint venture will be the first step.
Making sure all the employees are aware of the way people from other cultures
work and think will greatly reduce stress and unfulfillment due to
miscommunication.

The second step would be to
establish trust 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 speed of task fulfilment will be slow. Before everything else – countries,
currencies, fortune 500 companies, comes trust. It is the basis of human
relations and without it no international joint venture can be successful.

The last step would consist of
maintaining the already achieved synarchy. If any issues come to the managers,
they should resolve them quickly, ignoring cultural background in case of human
error. Analysing mistakes and preventing the same ones from occurring again is
crucial, so that in case of any new ones employees will report them in a quick
manner without fear.

It is fear that can prevent success.
A good manager will know that after an international joint venture is formed,
workers will be afraid for their jobs. Pursuing the best results, some of them
might seek possible mistakes not in themselves, but in their new colleagues. If
all the cultural differences are carefully presented, every possible
misunderstanding is addressed in advance and fear is no longer present,
everyone will focus on fulfilling the companies milestones.

The very basis of cultural
differences is the way we think and see the world, leading us to be deeply
afraid of other’s mindset. Overcoming this helps everyone of us judge other
people’s actions and decisions not from a national viewpoint, but from a human
one – ultimately understanding that we are all the same and we can make every
big international joint venture work out, as long as we keep an open mind and
focus our efforts for the same goal.

 

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