Culture an Overused Term and International Joint Ventures - Case Study Example

Student Name: Tutor: Title: Tesco in India Course: Tesco in India Introduction Management of cultural differences in international joint ventures decides the success of such a partnership. The joint venture by Tesco into India presents an interesting case that requires careful implementation due to the diverse differences in culture. There a few common grounds that can be integrated while the rest will mean that the companies have to look for the best way of managing the joint venture without antagonizing each other. Cultural compatibility between the partners has to be achieved. A unique culture that is different from both parent companies can be created and a middle-ground of operation for the joint venture (Barger, 2007). This report evaluates the joint venture between Tesco and Tata Group’s Trent Hypermarket while assessing cultural compatibility between the two partners. Proposed Tesco’s Joint Venture with Tata Group Tesco has suggested an equal joint venture with its existing partner in India, Trent, which is a Tata group company, to open stores in and Karnataka and Maharashtra. The decision of Tesco to invest in India was welcomed by Anand Sharma. The ministry of commerce and industry promised to expedite clearance. The British retailer Tesco confirmed that it has signed a joint-venture with Tata Group’s retailer in India for $138million. The world’s third largest retailer, Tesco got its approval from the Indian Foreign Investment Promotion Board to enter formally India’s $500billion retail sector through an agreement with Tata’s Trent. Trent and Tesco will together operate 12 stores using the brands ‘Star Daily’ and Star Bazaar’ across the western and southern regions of India. The merchandise involved includes groceries and food, home-care and personal products, kitchen and home items, accessories and fashion (BBC.Com, 2013). Following the approval by the Board, Tesco entered into an agreement with Tata Group to come up with a 50-50 Joint Venture in Trent Hypermarket that operates the Star Bazaar in India. Tesco became the first global supermarket to invest in India following the lifting of a ban on Foreign Direct Investment by the government in September 2012. Tesco has been working with Tata India for period of over five years prior to the agreement. It supported the development of their Star Daily and Star Bazaar multi-brand retail stores through providing of franchise and wholesale agreements. Tesco is delighted about partnering with Tata Group in India. Tesco was the first global retailer to apply for a multi-brand retailing license when it opened up for 51% foreign direct investment in September 2012 and its proposal subsequently cleared in December. Initially it was mandatory for foreign supermarkets to source about 30% of their products from Indian firms. The Indian government allows foreign companies five years in which to attain that target while allowing them the option to import goods from overseas (BBC.Com, 2013). Foreign retailers are will be permitted to set up shop in cities not exceeding one million limit population that had been initially banned. Evaluation of cultural compatibility of partners Culture is very crucial when it comes to international partnership. Culture is defined as the way of life of a particular society. It is the sum of moral norms, values and actual behavior of a particular society that is passed from one generation to another (Culpan, 2002). Companies’ internationalization in the global world has enhanced the significance of cultural biodiversity. International joint venture is whereby two organizational cultures are joined together to conceive a third culture that is often inspired by any of the two parent cultures or a new culture is formed through combination of various elements emanating from the parent cultures (Reuer & Tong, 2005; Yan & Luo, 2001). Partnerships like joint ventures are directly affected by culture at organizational and national level. The national culture where the joint venture is situated an impact on the organization and the subsequent management style that will be applied. Operational success of a joint venture highly depends on the cultural compatibility of the individual partners. Forming and operating a joint venture needs more than cordial relations between different management teams of the partners (Pullman, Verma & Goodale, 2001). The perceived commitment and worthiness of the partner in a joint venture are also important considerations. Tesco has been working with Tata Group previously and can establish how it is committed to the deal. Joint ventures do well in an atmosphere where there is inter-partner cooperation and forbearance but sometimes they are hindered by conflict and opportunism (Sinha, 2004). Apart from the national culture, each company has its distinguishing corporate culture. Prospective joint venture partners have to ascertain and assess how well can successful manage their differences in the organizational culture (Hill, 2005). The attainment of cultural synergy is a crucial factor in forming mutual trust that will contribute to the success of the venture. Tesco has to evaluate compatibility in management and organizational practices with Tata Group. The differences between Tesco and Tata’s Trend Hypermarket business strategy and organizational structure have to be established. Decentralization and centralization in decision-making differentiate the approaches to problem-solving of any two organizations (Gong, Zhang & Stump, 2007; Zahir, Dobing & Hunter, 2002). Tesco selected Tata Group since it has been previously dealing with it with regard to supply of some goods to its Tent Hypermarket. Cultural compatibility of the two companies with regard to operations is very important. Cultural divide structural solutions are rare but they exist. The 50-50 joint venture happens when there are huge cultural differences (Wallace, 2004). This is the case with Tesco and Tata’s Trent Hypermarket. Such structures are characterized by very limited resource flows and no exchanges of staff between the joint venture partners. This insulates the venture from the culture of the parent and encourages it to come up with its own culture (de Mooij & Hofstede, 2002). Particular structures can be ruled out owing to cultural issues. Culture is learned and derived from the social environment of a person. Culture is different from individual personality. The increasing awareness of the importance of cultural differences to business led to a great interest in explaining the differences in 1970s. Geert Hofstede became influential with his theory concerning cultural dimensions (Farmer, Smith & Yellowley, 2012). Hofstede theory of culture targets to explain cultural differences using certain dimensions like individualism-collectivism, power distance, uncertainty avoidance, and femininity-masculinity. Each country in the word has a score of the dimensions defined by Hofstede’s theory (Pheng & Yuquan, 2002). Using Hofstede’s theory of culture it is possible to compare the society in India and UK and determine whether there will be cultural compatibility when Tesco from Britain forms a joint venture with Tata’s Trent Hypermarket. Power Distance Power distance refers to the consequences of power inequality and authority relations in any given society. It has an impact dependence relationships and hierarchy in organizational and family context. With regard to Hofstede, the power distance (PDI) of UK is 35 that corresponds to the lower end scale and settles for a decentralized and flat structure in the entire organization (Soares, Farhangmehr & Shoham, 2007). On the other hand India value of power distance is 77 showing appreciation for top-down structure and hierarchy in society. Real power is centralized. This is contrasting with UK culture that encourages flat organization (Hill, 2005). Tesco and Tata Group will have to come up with a compromise management style and organization culture. Uncertainty avoidance Uncertainty avoidance is the degree at which people feel at threat by ambiguity and uncertainty and try avoiding such situations. The uncertainty avoidance index of UK according to Hofstede is also 35 hence regarded as a lower value that supports small size of organization with people putting emphasis on relationships. The India’s uncertainty avoidance score is 40 showing medium low preference towards avoiding uncertainty (Rohn, 2009). Here both UK and India do have very minimum differences and it will not be difficult dealing with the issue when Tesco forms the Joint venture with Tata Group. Individualism and collectivism Individualism-collectivism refers to relationships people have in any given culture. Individualistic societies encourage people to take care of themselves and their immediate family whereas collectivistic society individuals are members of groups. The Individual index for the UK is 89, which represents a very high value (Hofstede & Hofstede, 2005). The national culture of the UK supports individualism, as well as task-oriented behavior among employees. India’s individualism score is 48 hence it indicates a culture that supports both individualistic and collectivistic traits (Hollensen, 2004). With regard to this issue there will be no problem between Tesco and Tata’s Trent Hypermarket since Indian culture can adapt to both collectivistic and individualistic traits. Long/Short-term orientation Long-term orientation refers to the fostering of virtues inclined towards future rewards like thrift and perseverance (Silverthorne, 2005). Hofstede places the long-term orientation distance of the UK at 25 hence representing a lower value that encourages firms to accomplish short-term goals. India on the other hand has long-term orientation score of 61 hence the society and organizations prefers the accomplishment of long term goals (Kanousi, 2005; Steenkamp, 2001). A middle ground about this dimension has to be found between Tata Group and Tesco in order for the joint venture to be successful. Masculinity-femininity Important values in a masculine society are success and achievement while in feminine societies is quality of life and caring for others. The India score for masculinity is 56 hence making India masculine society. Masculinity index for UK is 66 (Holmlid, 2009). Both the UK and India are masculine societies hence there will be no problem when it comes to integration of with functions that touches on masculinity. Indulgence British score for indulgence is 69 showing that the society in the UK can be described as indulgent. People are willing to realize their desires and impulses through having fun and generally enjoying life (Hofstede, 2001). They are positive when it comes to attitude and inclined to be optimistic. Indulgence score of India is 26. India society has a culture of restraint. People tend to exhibit pessimism and cynicism. Little time is allocated to leisure and gratification of individual desires. People in Indian society feel that their actions are limited social norms and being too indulgent is wrong (Hennart & Zeng, 2002). This is another area where Tesco and Tata Group will have to decide whether to use managers only from India in order to avoid cases of conflicts. The UK culture where Tesco is based can be described as relationship oriented, individualistic, decentralized; short-term oriented and masculine. The culture of UK has an influence on Tesco and how it operates (van Everdingen & Waarts, 2003). Tesco and Tata Group can form common grounds on dimensions such as uncertainty avoidance, masculinity, and individualism-collectivism. The difference in power distance can be neutralized by finding a management structure that incorporates both decentralization and centralization in order to come up with an effective decision-making strategy (Cooper & Ross, 2007). The managers have to be alert to the differences that arising as a result of this joint venture. Conclusion Cultural compatibility of partners in important when international joint ventures are formed. The lift of a ban on foreign direct investment in India has opened new business opportunities for international multinationals like Tesco. Tesco was the first company to apply for a license to operate in India through a joint venture with Tata Group’s Trent Hypermarket. The companies have agreed on a 50-50 joint venture. Such a venture is ideal when there are diverse cultural differences between the partners. The differences in cultural dimensions between India and United Kingdom have been extensively analyzed and solutions suggested. However, the success of the joint venture will depend on how the managers will be willing to solve the differences that exist between the partners. If cultural compatibility is achieved between Tata Group and Tesco, it will be easier for the joint venture to blossom into success. The dimensions that are different have to be dealt with. 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