Cultural Difficulties in Joint Venture with Foreign Partners - Essay Example

For a global company from a Western economy contemplating a joint venture with a foreign partner in China, Japan or India, what are the cultural difficulties likely to be encountered and what are your recommendations for how to enable the joint venture to succeed Introduction Business and culture are intertwined to a greater or lesser degree in any country. It is a challenge for any company to understand how culture affects business practices in its own country, let alone elsewhere. Half of business alliances fail in any case (Morosini). We suggest that those that involve a combination of cultures are even more at risk. The poor success rate due to concentrating only on financial aspects will be even more detrimental in cultures where priorities lie elsewhere. We also believe that corporations actually sacrifice performance by neglecting to profitably leverage differences in culture and that culture mix is potentially advantageous. Western companies working internationally and planning joint ventures in China, Japan or India are unlikely to have put in place a working global strategy for themselves. To do this, they will need to identify what can be standardised between cultures and what must be localised (Yip). Some corporations know how to do this, McDonald's being a good example. Others do not: Burger King failed in at least one European country for this reason. Part of the cultural differences is the business management differences. We have seen companies from both the East and the West unsuccessfully try to impose their own style of management in completely different cultural contexts. In our opinion, there is no one management theory that is generally applicable, just as there is no "one-size-fits-all" culture. Instead, companies will need to take account of differences and develop particular solutions to handle them correctly (Trompenaars). Fundamental differences between East and West Compounded by fundamental differences in values, religions and languages, the business culture between East and West has developed in different ways. Some of these differences are immediate. The difference in language, both spoken and written, characters for some, ideograms for others. From our experience, a westerner's first glimpse of eastern cultural differences comes from the initial business communications, particularly in face-to-face meetings. Where the westerner expects to describe everything in great detail, the eastern cultures are more oriented to a context rich in non-verbal information, where less sometimes means more (Hall). China in particular has occasioned much discussion and revamping of business models. Hofstede in his model of cultural dimensions first defined four dimensions and then added the fifth, "Long-term vs. Short-term", to take account of China (Hofstede). We see this criterion, dealing with the attitude of persevering to overcome problems in time, as being typically weighted towards the long term for Asian countries in general. Going further than some of the other models defined, we can start to characterise China, Japan and India for joint ventures in different ways. Thus China is an example of a "diffuse" culture, where responsibility is shared or diffused (Trompenaars), compared with the "specific" culture of a country like the UK, where responsibility is specifically assigned. Japan can be described as having a synchronic culture (doing several things at once) compared to a typical western sequential culture. India with its caste system is a prime example of a culture functioning by ascription (status is given according to social standing) rather than the western ideal of achievement and meritocracy. China - cultural difficulties for a joint venture Of the three nations considered (China, Japan and India), China is perhaps the one that has undergone the most profound changes in the last century. The change from empire to republic and the transfer of power from self-elected dynasty to revolutionary leaders backed by the population were fundamental alterations. However, the culture in China has not evolved at the same pace and a certain trading insularity remains. For some time the joint venture was the only form of business that the Chinese government would permit with foreign companies, with investment regulations in favour of local Chinese partners in order to maintain a greater degree of control (China-Britain Business Council). We consider the joint venture in this context as one that is established in China. In our opinion, the tendency in China is still towards collectivism and state control. This is born out by Chinese internal politics and the state's role in approving joint ventures. For a western company looking to make a joint venture with a Chinese company, one of the priorities will be to ascertain if the Chinese company has the right to enter into such an agreement. For a joint venture aimed at serving the Chinese market in particular, further cultural differences (and difficulties) arise, notably on the subject of marketing and intellectual property. Chinese attitude to marketing may be that it is somewhat superfluous and that "buyers will line up at the company doors" (Fuchs). And even if Microsoft publicly admitted that they would accept revenue loss because of pirated versions of their software if this allowed them to build market share in China, our opinion is that there is a long-term issue to be resolved here. The same characteristics contribute to a potential lack of information about a prospective Chinese partner. Sometimes an Western corporation will find itself in the uncomfortable position of having to make a "leap of faith", something that runs counter to established western principles of being able to calculate the worth of any business initiative (China-Britain Business Council). Western companies may make the mistake of putting eastern countries and businesses into one category, the "East", whereas between China and Japan, significant differences exist. In our experience, many western business people are unaware of the differences between these two nations and their cultures. For example, when setting up a joint venture with a Chinese company, the subject of Japan is best avoided, because of its immediate links to historical feuding (chinese-culture.net). Other aspects that representatives of western companies may find unsettling as they work with their Chinese counterparts on the joint venture, include the almost certain transformation of the business relationship into a social relationship. A joint venture agreement may be signed or not signed on the basis of what the Chinese business people know about their western counterparts at a personal level. The personal relationship is, for the Chinese, an important part of the whole business agreement. China - recommendations We divide our recommendations here into three parts: those requiring cultural acceptance on the part of the Western business, those that are on a cultural common ground and that should be maintained as such, and those where cultural adaptation may need to sought on the part of the Chinese company. In the first instance of cultural Acceptance, western companies may need to accept that the company and location may be chosen for them in a joint venture, and that they will probably need to spend time in verifying that the Chinese company is authorised to negotiate with them. They will need to invest time and energy in meeting the government and state representatives who will also be stakeholders, even if they are behind the scenes, in the joint venture. Given the "high-context" aspect of the Chinese in general, written contracts, although clearly necessary, would do well to be as short and simple as possible, without sacrificing the quality of the business agreement. The cultural common ground to be maintained concerns the expectations that are independent of cultural differences, notably in the quality of the workforce and the facilities provided, as well as proof on the part of the Chinese company of a well developed access to the market and a sufficient network of local contacts. Finally, for the aspects of "cultural transfer", patience and determination will be necessary for the Western company to ensure that the fundamental notions of marketing and of protection of any intellectual property rights conferred upon the joint venture company are observed, and that the Chinese company can adopt a sufficiently individualistic (rather than collectivist) to ensure success in these areas. Japan - cultural difficulties in joint ventures The influence of Japanese business culture on western corporations has been considerable. Even if one can argue that the famous Japanese "quality circles" came about from the methods invented by an American working in Japan, Deming, many of the other inventions such as Kaizen ("little, continual improvements") and Just-in-time manufacturing are considered to be original Japanese contributions. However, joint ventures have their fair share of problems, such as the difference between the Westerner's tendency of asking "why" a thing is done in a particular way, at odds with the Japanese viewpoint that employees should first concern themselves with the "how" and wait until gaining more experience before asking "why". We see that further differences arise notably in the notion of the chain of command in a business environment. Western assumptions will be that for a joint venture company, a clear hierarchical structure with contact points defined in terms of the importance of the subject will exist. Japanese business culture however will encourage a more complex structure of management, where initial contact points are defined by time: matters relating to the present have a first contact point at junior staff level, and matters concerning the past or the future get first contact points with more senior members of the company, the level of seniority rising as the matter concerned is projected further into the future or dates from further back in the past. (Trompenaars) There are further manifestations of differences in the way that time is structured by businesses from the West and businesses from countries like Japan. Westerners are characteristically "monochronic" in their business activities. For them, business activities are typically sequential and they do not tend to mix business and leisure activities. The Japanese however have a business culture that is "polychronic" or "synchronic". There is no clear dividing line between business, leisure or social activities, and they will often extend this situation to do a number of things at the same time in business or non-business contexts. Japan also has, like China, a relatively strong degree of state intervention concerning foreign investors, if the joint venture is to be done in Japan. The government is sometimes seen as awkward, even hostile, to companies arriving from outside. Japanese companies themselves can also demonstrate resistance in the face of requests from foreign shareholders to reconfigure loss-making activities. The problem can be compounded when the company concerned is part of a "Keiretsu" or mesh of different Japanese companies, each with a vote on how things should be done. Where western companies will put (sometimes undue) emphasis on profitability of a joint venture company, the Japanese viewpoint is that short-term profit can be sacrificed for long-term market share. If the joint venture is to done outside of Japan, then in our opinion, Japan is as guilty of the "not-invented-here" attitude as its Western counterparts. This may be a consequence of Japan's cultural isolation even within Asian countries. Although considered "Orientals" by the western countries, other Asian countries see Japan as a nation and a culture apart. We emphasise this aspect by pointing out that when Japanese companies expand internationally, they often export their own management methods from a strong national, but not multicultural base (Harzing & Sorge). Japan - recommendations To succeed in a joint venture with a Japanese company, whether in Japan or elsewhere, requires a good understanding of the Japanese culture, both in the common points it has with other Asian cultures and in its differences. The Japanese culture is oriented much towards the group rather than the individual, a characteristic which is also to be found in the concept of "Wa" or harmony, rooted in history going back over more than a millennium. It is this concept of harmony that motivates the Japanese to try to preserve good relationships even when both parties disagree. Conversely, it also makes it more difficult for them to say "no". Western companies therefore need to be sensitive to the indirect forms of "no" that may be used, and be prepared to handle them in setting up and participating in a joint venture. In keeping with China and India, the notion of "face" is also of prime importance in Japan. Personal pride, individual reputation and social standing are all interlinked. The Japanese will tend to avoid direct criticism and confrontation where possible. Western companies will need to remember this and avoid causing a Japanese business counterpart to "lose face", potentially a very damaging situation to the success of a joint venture. On the other hand, and unlike China and India, the Japanese are relatively quick to take decisions, unless they have decided to use time as a negotiating tactic (a classic Japanese approach in the past for foreign business visitors coming to Japan). India - cultural difficulties in joint ventures The Indian subcontinent has strong historical links with English speaking people, dating back to colonial times when Britain maintained a strong presence. In business terms today, India struggles with cloying traditionalist bureaucracy and dynamic corporations that are reversing business history by expanding to buy out certain Western companies. Examples include the likely acquisition by Tata of UK base car manufactures Jaguar and LandRover, currently owned by Ford. Although status and ascription are evident in China and to some degree in Japan, we see this taken to an even greater degree in India with its caste system. Consequences for business are a power system unlike that of western companies and racketeering. However, by comparison with interventionist Chinese and Japanese governments, the Indian government seeks to encourage joint ventures, notably by more favorable tax rates than say for national subsidiaries of a foreign company. In addition, parent company liability is reduced for joint ventures and the government actively seeks foreign investment in a number of sectors. (Maadan). Foreign joint ventures and technical collaborations are part of the business landscape in India and have been for decades. However, Indian laws and bureaucracy can be complicated and burdensome. In a situation with similarities to China, there are two levels of legislation that need to be taken into account, that of central government and the different additional pieces varying significantly from one Indian state to another Our experience is that Indians are by their culture inductive in the way that they seek to understand and relate. It is the overall context that is important to them to be able to comprehend, and they consider that it is only natural to enquire about aspects that a western person would consider outside of the business perimeter. For western businesses, we foresee a negative reaction to this approach, because it will appear to digress from the matter in hand and seem vague and poorly focused. Time also takes a different value in Indian business. Building trust and establishing solid relationships is primordial for commencing business, whether a joint venture or any other kind. Discussions are led by senior executives and there is a strong sense of hierarchy in Indian business culture. Decision making, while typically within the hands of the Indian company representatives (which may not be so much the case for example with Chinese and Japanese companies) is frequently a process which is slow and thoughtful, and where pressure to accelerate from a western company can be construed as aggressive and lacking in respect (Communicaid). At the same time, Indians, in keeping with China and Japan, often shy away from direct disagreement. Two specific points that have on occasion caused problems for western companies concern deadlines and non-verbal communication. Deadlines in Indian business culture are seen as a shared responsibility, typically between employees and their managers. It is not always possible therefore to obtain a clear commitment from one person even on minor matter. The aspect of non-verbal communication that we have experienced ourselves and that we know to be problematic for Westerners is the way in which Indians, entirely in accordance with their culture, will shake their heads from side to side while listening to someone. Although westerners can mistakenly interpret this as negative, saying "no", for Indians it is in fact a signal that they are interested in what the other person has to say and wish to enhance and consolidate the relationship. India - recommendations In our opinion, the first task of Western businesses seeking to make joint ventures with Indian companies will be to know which sort of Indians they are dealing with. Notwithstanding the comments on some of the cultural differences and difficulties above, the penetration of Western business and ideas into India has also resulted in a population of westernised Indian business people. These people not only expect western businesses to be oriented towards financial aspects, to give and receive criticism readily and to want to move at a quicker pace, but they also expect it. In a sense there is the same internal divide in Indian business between the traditional and the progressive, as there is between agricultural and industrial, or even bureaucracy and business itself. For more traditional Indian business people, western businesses will need to adapt to a change of pace and be prepared to move towards joint ventures more slowly. As part of the process, they should also be prepared to answer questions and enquiries, which may not appear to be directly related to the joint venture, but which provide the encompassing knowledge that Indians need in order to make business decisions with confidence. Non-verbal communications are a major part of business dealings and need to be part of the "business language" preparation of any western business representative. India is not alone in having non-verbal expressions that convey opposite meanings to western counterparts. Conclusion - 1 A conclusion on enabling a joint venture to succeed must take into account both specific and general aspects. The overall advice to western companies would follow the recommendation to continually check that their perception of the cultural aspects of their business partners is not limited to their own viewpoint. By taking steps to ensure that they effectively use the viewpoint of their Chinese, Japanese or Indian colleagues, they will also avoid the temptation to bundle all of these cultures together under the banner of "Asia". As the discussion in the preceding pages shows, these countries have as significant differences in business culture as any. As each characteristic for each country is identified, so can a choice of methods be made to optimise cultural compatibility. We recommend Western companies to use methods already defined to avoid cultural myopia (a four-step solution suggested by Lee), and to integrate different cultural aspects by using some of the practical tools available for enhancing a cross-cultural dialogue (Trompenaars). For the generally applicable aspects, perhaps the following will best serve western countries in making successful joint ventures with China, Japan or India: preparation of business etiquette for the country concerned with a perception of why these things are important in the cultural context; appreciation of the "high context" environment that should motivate western companies to try to conclude joint venture agreements on the basis of clear, short written contracts, on the condition that these contracts cover all of the essential points; and acceptance that the word 'no' is often avoided and is replaced by other non-verbal cues and indirect communication which must be correctly interpreted, once again in the cultural context of the business to be done. References China-Britain Business Council (2008) -http://www.cbbc.org/market_intelligence/presense/jvs.html Chinese-culture.net (2008) - http://www.chinese-Culture.net/html/chinese_business_culture.html Communicaid - India (2008) - http://www.communicaid.com/cross-cultural-training/culture-for-business-and-management/doing-business-in/Indian_business_culture.php Communicaid - Japan (2008) - http://www.communicaid.com/cross-cultural-training/culture-for-business-and-management/doing-business-in/Japanese-business-and-social-culture.php Culture-at-work.com (2008) - http://www.culture-at-work.com/usjapan.html Fuchs, Manfred, (1997) Institute of International Management http://www.ercim.org/HPCN/docs/C4.pdf Hall, E.T. (1976) Beyond Culture Harzing, Anne-Wil & Sorge, Arndt - The relative impact of country of origin and universal contingencies on internationalisation strategies and corporate control in multinational enterprises: Worldwide and European perspectives (Organisation Studies). Hofstede, Geert (2008) - http://www.geert-hofstede.com Madaan (2008) - http://madaan.com/jointventure.html Morosini, Piero (2005) - Managing Cultural Differences: Effective Strategy and Execution Across Cultures in Global Corporate Alliances Trompenaars, Fons and Hampden-Turner, Charles (1997) - Riding the Waves of Culture: Understanding Cultural Diversity in Business Yip, George (1995) - Total Global Strategy: Managing for World Wide Competitive Advantage Read More