International Joint Ventures

Agenda Definition of IJV Difference between domestic and international joint venture Types of IJV 5 Focal Areas of IJV Recommendations Conclusion

Definition of IJV A newly formed company by two or more enterprises in two or more countries. The purpose of an IJV is to acquire technical know-how, production equipment, distribution facilities and/or capital endowment as well as to develop a new product or manufacturing process. The primary motive in most cases for the creation of an IJV is to close the gap between strategic intent and resource availability to achieve a strategic objective not attainable by acting autonomously.

Difference Between Domestic and IJV Domestic joint venture International joint venture To seek collusive practices To facilitate the penetration in new markets To get access to the know-how of the others To develop a new product and/or production process To penetrate new sectors To reduce risks of cross-border transactions More than one partner Small number of partners Partners have similar size Partners have different sizes Greater predominance of equal equity Less balanced distribution of equity in IJVs

Types of IJV Independent IJV Shared management IJV Dominant parent IJV

5 Focal Areas of IJV Diversified workforce Management control Conflict Managing Change for Competitiveness Job Insecurity

Diversified Workforce Positive Impacts of Diversified Workforce Improved organizational performance Diversified workforce can create a creative and innovative knowledge base Higher Quality Problem-Solving in Teams Negative Impacts of Diversified Workforce Diversity Can Increase Coordination and Control Costs Culture Shock--Toronto Hotels

Management Control Who actually controls the operation can depend on who is responsible for the day-to-day management of the IJV. Top manager will be expected to make decisions that deal with the demands of both companies. The most common management error in IJVs is a tendency for each partner to want control. Control plays an important role in determining a firm’s ability to achieve its strategic objective.

Management Control Without effective control efforts, firms are likely to experience increased difficulty in successfully managing their operations and achieving their objectives. This is a particular concern in the case of IJVs since, due to the shared ownership and decision making nature of these ventures

Conflict Sources of Conflict: Cultural differences between partners The desire for control and autonomy The differences in goals Role conflict and role ambiguity

Conflict Negative Impact on IJV Create stress, hostility, dissatisfaction, low productivity, difficulties in decision making, and distortion of reality Positive Impact on IJV Conflicts serve as filters of incoming information Conflict also serve the creation of alternative solution to unexpected managerial situations

Managing Change for Competitiveness Restructuring Organization (Godrej Soaps Limited –P &G) Restructuring Supply Chain ( Tata Engineering- TELCO, contracts with small manufacturers to supply complete subassemblies instead of components ) Redesigning Management Practice (Maruti Udyog Ltd- Suzuki Motors)

Job Insecurity Definition Effects Employee Health Wellbeing Job Attitude Work Behaviour Case IJV Between Western Companies and Chinese Companies

RECOMMENDATIONS

Diversified Workforce Organizations are constantly seeking to maximize the benefits of diversity while minimizing the drawbacks. A number of strategies that can be adopted by organizations seeking to benefit from diversity, Leadership, Organizational Policy and Providing Training and Development are most recommended. Leadership and Organizational Policy Providing Training and Development

Management Control Recruitment and staffing of IJV employees, particularly those in the venture’s top management position. IJV partners should involved in the recruitment and selection of staff. Performance appraisal will be left to the discretion of the new general manager. Appraising employee performance is important because it provides information about how well jobs are being performed and objectives are being met.

Conflict Job design clearly define the roles and goals Regular meeting provide more opportunity for people to communicate with each other due to the cultural differences Teamwork assignment provide opportunity for people to work with each other and get more involved within the organization

Managing Change for Competitiveness Reinforce the vision of the future. Keep the vision of where we want to get to, crystal clear in our minds. Reduce ambiguity. Emphasize benefits. Minimize the pain of the transition. Have a plan of action to reduce the chaos. Celebrate every little success. Reward effort, even when the results are not perfect. Ensure the consultant is highly experienced in organization-wide change.

Managing Change for Competitiveness Seek Consultants advice Seek to manage change instead of controlling it. Maintain a flat organizational team structure and rely on minimal and informal reporting requirements.

Job Insecurity Employer Benefits Good Job Performance Good Organisational Citizenship Behaviour Trust In The Organisation Reduction Of Job Insecurity

Closing Thoughts… IJV are becoming a popular means to enter competitive markets for global giants. However, the risks of cross-border expansion still remains. To have a successful IJV, both partners should have a good understanding of each other’s cultures, establish a good work collaboration and work towards a common objective. The risks of cultural integration would still exist - often times management from both the sides often ignore the cultural integration issue assuming that they can take care of it - but cultural integration often falls between the cracks - and the IJV ultimately fails.

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