Problems in an International Joint Venture - Case Study Example

Literature Review Table of Contents International Joint Ventures or IJV 3 The Joint Venture of Pancevo Brewery and the Eden Group 3 Problems in an International Joint Venture 4 Industrial Relations in Europe 6 A Cross Cultural or International Human Resource Stance 9 References 9 International Joint Ventures or IJV International Joint Ventures is merging of company cultures to a condition where its people adopt a new set of values, expectations and ways of behaving, especially those existing within the IJV parent company. International Joint Ventures are very important for the growth, success and expantion of any organization. They help in the following way: To gain knowledge and transfer the same. Host government insistence Increase economies of scale To obtain vital raw materials To spread the risks To increase competitive advantage in the face of increasing globalization. To produce a cost effective and efficient response in the market. The Joint Venture of Pancevo Brewery and the Eden Group The case cites the merger between Pancevo Brewery of Serbia and Eden Brewery of Eastern Europe. Pancevo which operates with three different brands “Weissar”, “Karlbrew” and “Starivo”, merged with Eden Brewery which operates in Russia, Ukraine, Romania and Moldova and Kazakhstan. The joint venture was officially registered on the 25th of August 2003 and the company was renamed “Eden Weisser”. After the joint venture Eden not only injected the a good flow of capital into the organization but also resorted to quality enhancement measures like pasteurisation, product rebranding with a new logo, reshaping the bottles and crates, introducing new plastic bottles and relaunching the Weisser brand. Problems in an International Joint Venture The most important feature of any joint venture is the Cross Cultural Differences that two or more organizations that are located in different countries have to undergo. Cultural differences often influence the manner in which the partners in the joint venture make strategic decisions and solve problems. For example the Japanese organizations tend to see inter firm alliances primarily as interpersonal relationships whereas American organizations view them as endurance of design irrespective of the specific managers that are involved. Performance related pay is more popular in USA than in Germany or Japan. Again recruitment in USA is a short term action as compared to France, UK and Germany. Training and Career planning is the most extensive part in USA. Interpartner differences in for avoiding uncertainties and long term orientation have a significant negative effect on the survival of the joint venture while differences in power distance, masculinity and individualism does not have any effect on the survival of any joint venture. The Structure of Parent Control also influences the stability of any joint venture. Dominant management structure can minimize coordination costs and hence outperform shared control joint ventures. However unequal distribution of ownership gives majority shareholders greater power which can be detrimental to the interest of the minority owner. A balanced ownership is always advocated in the partners bargaining power is evenly matched. Ventures that have split ownership have greater chances of success than the ventures that are dominated by one company. Performance of ventures with shared rate of control is greater. For example one organization has a mechanistic culture that is bureaucratic and hierarchal with clearly defined rules and regulation. The other organization is having an organic culture which means that the organizational structure is informal, non bureaucratic and decentralized. These fundamental differences in culture will result in severe conflict in organization. It was found out that the mutual understanding of each other`s culture is very essential to a successful relationship between two companies. Expatriation Management is also an important feature of any cross cultural joint venture. Expatriates assignment predominantly occurs in the joint ventures and wholly owned foreign subsidiaries. Sometimes licensing agreements also involve expatriates. The recruitment of employees for international jobs is the most important problem that is faced by joint ventures. Expatriates are mostly sent abroad for management development reasons. In terms of training the most important activity are the language courses while cross cultural training plays a minor role. Style of Leadership of IJV has tended more towards the top down approach. But now the approach adopted are wider, consensual, and sympathetic to the issues of cultural differences and interdependence between the organizations of the IJV. This consensual approach to leadership is the core of the new management of IJV. The leadership style in IJV is all about stimulating a free flow of cross boundary ideas, building networks of flexible relationships between different parts of the IJV, creating an open and empowered organizational climate, keeping a methodical approach to cost and quality issues. During any merger and acquisition significant restructuring involves Downsizing of the labour force. With major organizational change efforts, the restructuring or downsizing phase should be carefully planned so that the staff to which it will affect can be consoled with proper understanding and corporation. Proper schedule should be developed for the change process and the changes should be conducted according to the plan. Although the threat of losing jobs can be very painful yet it is an important process in order to eliminate redundant position following an international joint venture. During such international joint venture the governmental policies and the labour contracts partially determine the downsizing practice. However certain companies avoid the downsizing process by- Job sharing Retraining Transferring staffs to other companies Reducing salaries and incentive pays. Diversity is another important issue that needs to be addressed in the long term in case of international joint ventures. When Eden group took over Pancevo Brewery, a joint transition team, comprising of senior managers from the Eden Group as well as from Pancevo, was created. This team included the former general manager at Pancevo and also the managers of sales, law, technology and finance. It was joined on a project to project basis with the help of temporary expatriates’ experts who offered their assistance on matters such as information technology and quality control. The majority of the new management team including those from sales, legal, purchasing, logistics and HR functions were of Serbian nationality while the general manager was a Belgian. Linking performance appraisal which involves qualitative assessment of individual`s performance to be checked by line managers on a periodic basis will involve loss of social benefits on the part of the workers. Due to the implementation of this policy the new management team is earning a large sum of profit which is ten times than the rates that are paid to the workers. Industrial Relations in Europe Europe is a large continent and its countries have formed a union known as the European Union. The EU is a political and economic union of 27 European states that are located in Europe. It operates through a mechanism of supranational intergovernmental and independent institutions negotiated decisions by its member states. The institutions of EU include European Commission, Council of European Union, European Council, Court of Justice of the European Union, Court of Auditors, European Parliament and many such institutions. As we know that the parties in the industrial relations are the employee who is represented by the trade unions, the employer who is also the management and the government. The Employees- The members of the European Industry Federation (EIFs) form the national trade unions. The ETUC has created a well established sub structure at all the sectoral levels which covers the entire European industries and services. The EIFs are comparatively weaker in terms of financial and human resources and often lack mandates to negotiate from their member organizations. The Employers- Apart from UNICE, the association of employers are relatively few and narrowly defined in the sub sectors. UNICE members are general business organizations and their concern circles the product market and the economic interests rather than the social interests and the labour markets. Thus they are the weak counterparts of EIF`s which is in vast majority in the industries and services. In 1993, European Employers` Network was launched by UNICE for informal exchange information and communication at a sectoral level and not as a body of formal decision making. The objective of EEN was not only to exchange information and views on social policy between European employer organizations but also to promote convergence of views and positions among employers to enhance their ability to make strong and credible representation at the Community Institutions and European Trade Unions to prevent the duplication, proliferation and overlapping agreements at the European level. The fundamental differences in the interest of both the parties are very apparent. While ETUC and EIFs are interested in different kinds of social dialogues, bilateral and trilateral concertation and autonomous dialogues as a means to promote the social dimension of the internal market, UNICE is keen to preserve the renewed principle of subsidiarity which favours the decentralised and private instead of centralized and public regulation at EU level. In other words EUTC needs an elaborated and comparatively homogeneous sub structure to negotiate while UNICE prefers a high degree of organizational fragmentation. Again while EUTC prefers binding and strict form of regulation of market forces such as directives, UNICE prefers soft instrument and non binding regulations such as recommendations, guidelines and joint recommendations. Problems of Representativeness is another serious and persistent problem in the context of industrial relations as prevails in Europe since they determine legitimacy of the social partners concluding frame work agreements and the procedure. It not only refers to the most straight forward method of identifying management and labour entitled under certain agreements but also includes several other issues. This isse is difficult to resolve on a sector to sector basis since only three peak associations of social partners have been recognized UNICE, CEEP for the employers and ETUC for the employees or trade unions). The Collective Bargaining process is largely differentiated by the levels at which it is held, i.e., whether it is held at national or cross sectoral level , industry, or company level; the subjects that are covered like pay, training, hours of work and the length of time that the agreements last for. The collective bargaining process is found to be the notion of coverage, i.e., the proportion of workers in the labour force, the benefits that they are getting and the different collective agreements. Some countries like Austria, Sweden, Belgium, France and Spain have high level of coverage but Bulgaria, United Kingdom, Hungary have low level of coverage. A Cross Cultural or International Human Resource Stance In 1978 People`s Republic of China formed a joint venture with Deutsche Lufthansa AG together with the government of the city of Beijing. They decided to establish a multi functional service centre which was supposed to be a logistical basis for international business travellers. The management team of the joint venture composed of equal representation of both the parties (Dowling, Festing & Engle, 2008, P.62) References Dowling, P. J, Festing, M &Engle, A. D., 2008. International Human Resource Management: Managing People in a Multinational Context. U.K: Cengage Learning EMEA Read More