Reasons time and have little to no respect

Reasons for the formation of International Joint Ventures

 

Presenting a product, which
turned out to be successful in one country to a different one can often be very
hard. That is why when big companies want to expand their presence on the
global market they often form International Joint Ventures with other big
companies – overcoming various intercultural barriers and saving money and
time.

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However, many international
joint ventures are destined to fail due to various possible issues – starting
from poorly managed integration and raging to the hardest aspect to overcome –
cultural differences.

It is hard to describe what
culture 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 habits
we have and the way we think and work. This difference between an international
joint venture’s employees, when poorly managed, can result in significant
drawbacks for the companies and even bankrupt.

 

 

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. As a
result of that it is possible for an international joint venture to succeed,
but in 50 to 70% of the time it will fail. (Cf. Vadim
Kotelnikov)

 

 

 

 

 

 

 

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 infracture, 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)

 

 

 

Case study 2 – Danone and Wahaha                         

 

Corporate China in the 1990s saw
many failed joint ventures between multinational and local companies, but among
them 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 reason for the enterprise’s end was an obvious one – it was
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.