Reasons for the formation of International Joint Ventures Presenting a product, whichturned out to be successful in one country to a different one can often be veryhard.
That is why when big companies want to expand their presence on theglobal market they often form International Joint Ventures with other bigcompanies – overcoming various intercultural barriers and saving money andtime. However, many internationaljoint ventures are destined to fail due to various possible issues – startingfrom poorly managed integration and raging to the hardest aspect to overcome –cultural differences.It is hard to describe whatculture really is, as it is everyone around us.
We can find it in our clothes,books and cuisine. It shapes our values and beliefs, often changing the habitswe have and the way we think and work. This difference between an internationaljoint venture’s employees, when poorly managed, can result in significantdrawbacks for the companies and even bankrupt. Drawbacks of cultural differences in workers relations As international jointventures are often made between companies of distant countries, the contrast inthe worker’s ethics can be severe. They occur rarely because of religion andmore often due to one country being monochronic and the other – polychronic.On one hand representatives ofmonochronic societies will tend to focus on one task at a time and have a bigrespect for appointments and deadlines, whereas people from polychroniccultures will do multiple jobs and a time and have little to no respect fortime. Although highly accurate for most, this is a stereotypical view and isnot the valid for every person coming from one of those types of culture. As aresult of that it is possible for an international joint venture to succeed,but in 50 to 70% of the time it will fail.
(Cf. VadimKotelnikov) Case study 1 – Walmart and Bharti Wal-Mart, as one of thebiggest retail companies in the world and currently the most successful in theU.S., is always trying to expand the organization’s global footprint byspreading their operations in different countries. This is where India comesinto act – the Asian country remains as one of the best-untapped sources forinternational companies to grow market share and future profit. However,between the U.S. market and the Indian one there are many differences whichstand on Wal-Mart’s way.
Currently the Indian’s marketis 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 thegovernment as locations for local farmers to sell their agricultural productiondirectly to the customer. In Kirana stores, which are independently owned, onecan find necessities and groceries. The other retailing formats to whichconsumers are used to include streetcars, pavement shops, public distributionsystems, kiosks and weekly markets. In recent years India has seen modernlarge-scale stores emergence, but they result in only 2% of all retail salesnationwide.
(Cf Vijaykumar Nishad, 2016) In combination with the badcondition of the Indian infracture, this way of shopping makes it impossiblefor 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 alocal conglomerate – Bharti Enterprises. The Indian company knows thepeople’s preferences for shopping and has already proven to be prosperous inthis field. However, as with any international joint venture, there is a bigchance of failure due to many reasons, one of which Wal-Mart’s ambition to notdisclose any of their logistics know-hows and Bharti’s wish to find out how didthe U.S.
retailer get so big.Apart from company secretsthere is the also the issue of cultural barrier not in the market, but in thecompany. India is a polymorphic, collectivistic society, whereas USA is amonomorphic, individual one.
The Indians are accustomed to taking care ofothers, even when this means being late on deadlines, whereas Americans wouldtend to put emphasis on work instead of people. Furthermore, the later focusall their efforts on one task, while the South Asians can easily distractbetween many things at the same time. Last but not least, the contrasting timezones also have a great effect on the result of the venture, as there is a 13hours difference 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) Case study 2 – Danone and Wahaha Corporate China in the 1990s sawmany failed joint ventures between multinational and local companies, but amongthem some of them 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 reason for the enterprise’s end was an obvious one – it wasthe cultural differences.
Wahaha began business back in1988 when Zong Qinghou, a farmer, began selling dairy products next to a schoolshop. Following his entrepreneurial nature, he grown the company and soon movedto bottled 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 was exponentiallygrowing and seemed like the perfect option for the French company. This resultedin a deal for an international joint venture between Danone and Wahaha, withthe first taking 51%, and the Chinese partners having 49%. This approach wouldbe toxic for the partnership in the future.However, everything seemed agood fit at first.
Danone brought capital and product research and combining itwith Wahaha’s local knowledge both sides profited well. The Chinese companybecame the leading brand in the water market, and accounted for 5% of Danone’sprofits in 2006. (Cf. Geoff Dyer, 2007) As the businesses expanded and becamemore complex, the French conglomerate had several unsuccessful attempts to buyout Wahaha.
Soon a legal battle followed over a trademark dispute, with both sidesdeciding to suspend their demands and resume negotiations. (Cf. Wikipedia, 2008)The failure of the internationaljoint venture 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 jointventure between Danone and Wahaha the later company had control over theday-to-day operations, for which Mr. Zong was responsible. His employees rarelyquestioned his decisions and at the same time the French workers opinions were rarelyvalued. However, as the European company had 51% ownership, the result of everyaction was questioned.
This created a huge gap of misunderstanding between thepartners. The time difference of 17 hours made things even worse for thepartnership, as communication could hardly be sustained.Furthermore, as France has an individualisticculture, employees tend to separate work from their personal life and canrarely be manipulated. On the other hand, China is a collectivistic country andpeople often combine their job and their life, which sometimes can lead tocorruption. That was the case with Danone and Wahaha’s partnership, which endedwith allegations for corruption coming from the French conglomerate.