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Cultural Distance and Cross Border Strategic Alliances

Applied Management Project

Term Paper 2013 38 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Table of Contents

Chapter 1-Aims & Objectives
1.1. Background Context
1.2. Research Question
1.3. Research Objective
1.4. Summary

Chapter 2-Literature Review
2.1. The Concept of International Joint Ventures (IJV)
2.2. International Joint Ventures (IJV) Process
2.3. Cultural Aspect in International Joint Venture (IJV)
2.4. National Culture
2.4.1. Power Distance Index
2.4.2. Uncertainty Avoidance
2.4.3. Individualism vs. Collectivism
2.4.4. Masculinity vs. Femininity
2.4.5. Long-term vs. Short-term Orientation
2.5. Organisational Culture
2.5.1. Process vs. Result Orientation
2.5.2. Employee vs. Job Orientation
2.5.3. Parochial vs. Professional Orientation
2.5.4. Open vs. Closed System Orientation
2.5.5. Loose vs. Tight Control Orientation
2.5.6. Normative vs. Pragmatic Orientation
2.6. Summary

Chapter 3-Case Study
3.1. Case-Study on Alcatel-TCL Joint Venture
3.1.1. International Joint Venture Process
3.1.2. Partners’ Cultures
3.1.2.1. Alcatel (Partner:1) Culture
3.1.2.2. TCL (Partner:2) Culture
3.1.3. Findings
3.2. Summary

Chapter 4-Discussion & Conclusion
4.1. Discussion
4.2. Conclusion
4.3. Recommendations

Chapter 5-References

EXECUTIVE SUMMARY

In the environment of Global Markets, the concept of International Joint Ventures (IJV) is appearing as a common phenomenon and there are huge number of corporation who are successful in experiencing considerable growth and expansion through this strategic form of alliances. This report is made in accordance with context of cultural differences in an approach to investigate the phenomenon that to measure the degree of influence of cultural differences on the performance of International Joint Venture (IJV) at both context (National Level Culture & Organisational Level Culture). Cuplan (2002) described International Joint Venture as a process which involves the inclusion of two or more companies from different countries who come together on the single platform with the intension of contributing each other resources and capabilities in creating a separate Business Unit. The process involved in this strategic alliance can be evaluated and analysed through various ways but the best approach is Culpan (2002) approach, this approach viewed each stage from the context of decision making involved in it. From the perspective of this appropriate approach the process of International Joint Venture (IJV) is made up of four different phases (Initial, Formation, Operation and Outcome). The Joint Venture named Alcatel-TCL was also made with the intension of becoming Global Leader in the mobile handset manufacturing. The focus was more on the two aspects (Design and Technology). Moreover, the secondary focus was on the integration of four components (Development Targets, Management System, and Operational Decisions & Staff Treatment). But, after 8 months (17-May-2005) the Joint Ventured was dissolved and both companies had decided to carry on their operations on the Individual basis. Generally it has been realised that the cultural distance existed at the organisational level was the prominent cause of given Joint Venture dissolution. And within the organisational context, the difference existed among both companies in term of open vs. Closed system orientation was the only factor which made difficult for the Alcatel-TCL to sustain for a long period of time.

Chapter 1- Aims & Objectives

1.1. Background Context

In the environment of Global Markets, the concept of International Joint Ventures (IJV) is appearing as a common phenomenon and there are huge number of corporation who are successful in experiencing considerable growth and expansion through this strategic form of alliances. In these kinds of ventures, various companies from different countries and cultures come together on one platform with the central objective of capitalising each other competencies in best possible manner which allowed them to gain competitive edge which would last for long period of time (Tayeb, 2001). After the approval of Joint Venture contract, both parties are entitled to use resources of capabilities of each other to attain the corporate objective.

According to Wallace (2004), it is an agreement where two or more firms are in the quest of achieving desirable outcomes which could not be possible for them to accomplish on the individual basis (Wallace, 2004). The preferable objective observed in most International Joint Ventures (IJV) cases is the accomplishment enormous level of growth which not only be resulted in making the position of given stronger in the specified market but also would be sustainable. In general the concept of International Joint Ventures (IJV) is seemed to be explicit and also depicting a clear view of involved companies approach and motivation and sometime could also be discussed as more than the kind of Partnership.

The global markets’ have supported the overall significance of this strategic alliance and is being adopted by the businesses on the great extent and is now considered as an important approach which could have high likelihood of gaining and experiencing enormous growth in the specified marketplace. It has been explained by Stiles (2001) that this concept has made possible for the companies to reach inaccessible markets and sometime supports the building innovative and creative ideas which thus could also be resulting changing the company’s existing conventional structure which then permit them to sustain and enhance their position in the given market scenario (Stiles, 2001).

This approach of International Joint Ventures (IJV) also holds stagnant position when it comes to the consideration of expanding the company’s existing operating base through an entry in the overseas market. But there are some factors which have needed special attention as otherwise it could affect the performance of given International Joint Venture. These factors are listed below:

- Process of Organisational Learning
- Transfer of Knowledge
- Cultural Difference among Partners

Whereas, other issues are regarding to decision making on Ownership pattern and the controlling process. These all issues are embedded with the approach of International Joint Ventures (IJV).

The issue of Cultural Distance may be the prominent issue and plays a significant part especially in the initial stages of given venture. The influence of this factor is greatly observed in the approach of International Joint Ventures (IJV). It has been depicted by Berger (2007) that the phenomenon of International Joint Ventures (IJV) involves the state of coming together of two companies organisation with the objective of formation of another culture which could either be encouraged by partners’ parent cultures or could take a form of culture of distinct characteristics which of both parent cultures (Barger, 2007). From past few decades, there have been a significant amount of literature has been made on the concept formation of International Joint Ventures (IJV). In relation to various studies, it has been ascertain that the formation process of alliances between two or more companies could directed them towards the situation of incompatibility issues and then it be only resulting in dissolution of given venture. This issue is also outlined by Morisini (1998) who explained the most frequent problems which could directed the given venture towards the failure are: Cultures Mismatching, Shared View absence and the existence of inefficiency among the partners’ communication (Morisini, 1998).

This report has been made for the purpose of examining the cultural differences’ implications within the concept of International Joint Ventures (IJV). For the purpose of broad understanding of ongoing issue of cultural differences at Organisational level, this report will also focus on one case study which would represent the in-depth analysis of International Joint Venture (IJV) process and also will highlight certain cultural differences complications related with it.

1.2. Research Question

The approach of International Joint Ventures (IJV) is considered as the most discussed form of strategic alliance and is pursued by the Multinational Companies (MNCs) at the mass level with importance of expanding its operations in the overseas markets with of focus of attaining the economies of scale. It is actually a platform where the companies from different cultures are considering the fact of engaging together for the purpose of exploiting each other competencies in the best possible manner. But on the few occasions, the issue of cultural difference becomes prominent which could only be resulting in the termination of existing venture. From many Authors’ perspective, it is the ultimate cause of termination of International Joint Venture (IJV) and the only reason of the given fact is the of incompatibility in terms of cultures between the partners involved in it. And these differences have been analysed and evaluated from context of national level culture as well as from the organisational level culture. With the effort of observing the clear context, this report has been made to investigate the fact that which context level culture is resulting in affecting the performance of International Joint Ventures (IJV).

The charisma of continuous growth within context of global markets and also in the sector of technology has been resulted in directing the frequency of International Joint Ventures towards enormous amount even though it has already been regarded as riskiest type of strategic alliance. It has been calculated that there were about 37% to 70% International Joint Ventures (IJV) who suffered problems because of this cultural incompatibility issue which not only affected the overall venture performance but also ended with costly failure. In general, the issue of cultural differences embedded within the given venture is considered as the most frequent issue which not only intended the involved companies to split from each other but also intended them to bear heavy losses from where it looks very difficult to get recovered.

1.3. Research Objective

This report is made in accordance with context of cultural differences in an approach to investigate the phenomenon that to measure the degree of influence of cultural differences on the performance of International Joint Venture (IJV) at both context (National Level Culture & Organisational Level Culture). This study will put emphasis on both ways. The first argument will be based on argument drawn by Harrigan (1998) that studies conducted in the past were seemed to focus more on examining the impact of national cultures in accordance with International Joint Ventures (IJV) performance and does not took role of Organisation Culture into consideration (Harrigan, 1988). The central focus of this report is associated with evaluation and examination of both levels cultures through the study of their own dimensions in relation to the performance of given International Joint Venture (IJV). This objective is strongly linked with two secondary objectives mentioned below:

- To gain knowledge and confidence that the findings drawn from the effect of one level would not be impacted by the effect of other.
- To assess the relative influence of National Cultural Distance in relation to the Organisation Cultural Distance on the International Joint Ventures (IJV) performance.

The second view is more focused on the approach the studies conducted in past had utilised macro level cultural distance measures which thus made hard for them to identify and differentiate the impact of both cultural distance dimensions. This study will consider micro level dimensions of both context of cultural distance which would allow the reader to signifies and differentiate the influence of both cultures dimensions on the performance of International Joint Ventures (IJV).

1.4. Summary

In the environment of Global Markets, the concept of International Joint Ventures (IJV) is appearing as a common phenomenon and there are huge number of corporation who are successful in experiencing considerable growth and expansion through this strategic form of alliances. According to Wallace (2004), IJV is an agreement where two or more firms are in the quest of achieving desirable outcomes which could not be possible for them to accomplish on the individual basis. Stiles (2001) that IJV concept has made possible for the companies to reach inaccessible markets and sometime supports the building innovative and creative ideas which thus could also be resulting changing the company’s existing conventional structure which then permit them to sustain and enhance their position in the given market scenario. There are some factors Process of Organisational Learning, Transfer of Knowledge & Cultural Difference among Partners) which have needed special attention as otherwise it could affect the performance of given International Joint Venture. According to Berger (2007), the phenomenon of International Joint Ventures (IJV) involves the state of coming together of two companies organisation with the objective of formation of another culture which could either be encouraged by partners’ parent cultures or could take a form of culture of distinct characteristics which of both parent cultures. It has been calculated that there were about 37% to 70% International Joint Ventures (IJV) who suffered problems because of this cultural incompatibility issue which not only affected the overall venture performance but also ended with costly failure. Harrigan (1998) stimulated that studies conducted in the past were seemed to focus more on examining the impact of national cultures in accordance with International Joint Ventures (IJV) performance and does not took role of Organisation Culture into consideration.

Chapter 2- Literature Review

The literature material available on the given issue of Cultural Distance is in substantial quantity. There is also the availability of research articles on the context of Cultural problems at both level (National & Organisation). But it seemed that less literature has been existed on the techniques which could also be resulted in suggested the given venture to formulate and form new culture which offset the risk of occurring of cultural differences issue between the partners. After the careful consideration of researched material available at short hand various concepts have been included and discussed in this chapter which would be helpful in addressing research question mentioned in the previous section.

2.1. The Concept of International Joint Ventures (IJV)

It is the mode advanced form of strategic alliances and is being discussed by various practitioners and researchers in depth. Cuplan (2002) described it as a process which involves the inclusion of two or more companies from different countries who come together on the single platform with the intension of contributing each other resources and capabilities in creating a separate Business Unit (Culpan, 2002). On the other hand Wallace (2004) described it as an agreement where two or more firms are in the quest of achieving desirable outcomes which could not be possible for them to accomplish on the individual basis. The preferable objective observed in most International Joint Ventures (IJV) cases is the accomplishment enormous level of growth which not only be resulted in making the position of given stronger in the specified market but also would be sustainable. In general the concept of International Joint Ventures (IJV) is seemed to be explicit and also depicting a clear view of involved companies approach and motivation and sometime could also be discussed as more than the kind of Partnership. From the previous two definitions, it has been understood that there are three significant variables (Well defined goals, Inclusion of multiple individual firms & Intensity of Interdependence).

It has been outlined by Wallace (2004) that within International Joint Venture (IJV) there are two firms are involved in it but in depending on some situations in relation to the size and nature of given industry, it could include more than two firms. He also explained that one more aspect which is also dependent a lot on the companies’ independence is the value of company in relation to its objectives, values, structure of the management and the culture of companies which could direct the given venture towards the arising of compatibility issues.

International Joint Ventures is based on the mutual interest or the common goals of all partners involved in it. The central objective of International Joint Venture (IJV) should meet the needs of each firm in a timely manner as the success of given alliance is dependent primarily on the accomplishment of this particular aspect.

The most important component of this venture is the interdependence between the involved companies which is also the differentiated aspect of this form of strategic alliance. Each partner company has to contribute at its own and also supports other partners for the purpose of accomplishment of mutual goals and objectives.

2.2. International Joint Ventures (IJV) Process

The process involved in this strategic alliance can be evaluated and analysed through various ways but the best approach is Culpan (2002) approach, this approach viewed each stage from the context of decision making involved in it. From the perspective of this appropriate approach the process of International Joint Venture (IJV) is made up of four different phases (Initial, Formation, Operation and Outcome).

In the initial stage, certain decisive actions are settled by the companies for the purpose of entering the given International Joint Venture with consent of making profit and remain competitive (Yan, 2001; Gutterman, 2002). If the projection meet the certain criteria of risk and cost then the companies would take initiative and would enter the given venture in the timely manner.

Next stage is named as Formation Stage where the companies are in a position of making follow up decisions. In the most cases, these decisions are regarding to settle the term of International Joint Venture (IJV). These decisions are significant to decide over the investment and profit contribution of the given venture (Triantis, 1999). And in some cases the preference and the selection of partner is also made at this important stage (Cyr, 1995). Tayeb (2001) outlined that high percentage of ventures failed because of not executing this stage perfectly as they are unable to find suitable strategic partner. Culpan (2002) acknowledged this aspect and stressed out as the major factor which matters a lot to the success of given International Joint Venture (IJV), and also addressed that the values of compatibility aspect is realised within this given phase. Normally there are two forms of compatibility; the first one is the Cultural compatibility between international partners and the second one is the compatibility in terms of capabilities and resources owned by the engaged partners. Then Culpan (2002) has discussed the different categories of International Joint Ventures (IJV). The first category is known as major equity ownership where the one partner hold more than 50% stake in the given venture, second category is termed as equal ownership where the ownership is distributed equally between involved partners. And the third category is called as Minority equity ownership where the one partner is entitle for less than 50% stake. Usually, the decision regarding ownership pattern is significant to the implementation and controlling activities.

Next stage is regarded as the phase of Operation, which is strongly linked with the analysis and evaluation of International Joint Venture (IJV) which is very often made through the assessment of control and performance (Campbell & Netzer, 2009), According to Culpan, the performance of International Joint Venture (IJV) could be monitored in two ways; first one is related the measurement of both partners satisfaction from the given venture and the second one is through making comparison between the projected sales and profit figures with the actual figures. The second way is frequently found in the Outcome-based Control where the powers are delegated to the expatriate managers and the involved partners are more focused towards the financial performance of given ventures and also enjoys the benefits of autonomy (Kreuzer, 1990).

Last stage is known as Outcome Stage where the decision making is only concern with the approach of either to continue the existing venture or to abandon the venture (Carbaugh, 2011). The decision made at this stage entirely dependent on the Joint Venture’s performance and the given situation and in some cases the ventures continue despite of exhibit positive results but continue with the believe of doing well during the next period (Wolf, 2000). This decision made at this stage is also consider the given economic situation and in case that the venture performance failure is the caused due to the given economic condition then the partners continue the operation with the intension of exploiting the opportunities in the next tenure (Julian, 2005).

From all the above discussed stages, the formation stage is considered as the stage which is valuable in strategic context and also the success of venture is also matter a lot on this stage.

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Details

Pages
38
Year
2013
ISBN (eBook)
9783656496397
ISBN (Book)
9783656497127
File size
784 KB
Language
English
Catalog Number
v232220
Institution / College
University of Bedfordshire
Grade
Tags
cultural distance cross border strategic alliances applied management project

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Title: Cultural Distance and Cross Border Strategic Alliances