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1.   
Introduction

 

In this paper we will discuss reasons for
the formation of international joint ventures and possible ways for them to be
unsuccessful – the main one of which being cultural differences in workers
relations. We will look into the drawbacks of having employees from different
nations, taking into account various barriers, such as different language, time
zone, corporate structure and culture itself. Three international joint
ventures, all of which closed by now, will be analysed, two of which
unsuccessful and one of which successful, to illustrated possible issues due to
cultural differences and ways to overcome them:

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–       Wall-Mart
and Bharti Joint Venture;

–       Danone
and Wahaha Joint Venture;

–       Sony
and Erricson Joint Venture.

Each of the case studies will present 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 occur 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
without taking full responsibilities of cross-border transactions or so that a
company can improve its manufacturing capacities and outsource production. (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 if 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 company 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 deadline. On the other hand
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 valid for every person coming from one of those
types of culture.

Common issues for international joint
ventures are also 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, 2017)

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. (Cf. Wikipedia (2017))

 

 

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 competitor at the
time to the venture was Nokia Corp., which 
was offering consumers low-cost mobile devices and had 30.6% share of
the telephone market (Cf. Gartner
Dataquest, Feb 2001). Sony and Ericsson, combined, were aiming to offer
a product more technologically innovative than every other device available back
then.  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 really
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 miscommunication due to cultural differences. 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 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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