Case Study on Joint Ventures
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Added on 2020-01-23
Case Study on Joint Ventures
Added on 2020-01-23
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CASE STUDY: JOINT VENTURESQuestion 1(a): key factors influencing the success of joint venturesSeveral factors are instrumental in determining whether joint ventures between entities or corporations will be successful. Most of these factors revolve around the environment within which these ventures are set up be it physical, economic, social or political. Physical factorsThe geographical area within which corporations decide on setting up their enterprises is key in determining whether the venture will be successful or not. It is of great importance that extensiveconsultation and background research is done before a company decides to set up shop in a particular location. In most cases, the whole ideology behind joint ventures is so that there can bemutual benefits among the stakeholders and as such the company should be set up in one of the stakeholders’ parent nation with the- most suitable conditions.Economic factorsWithout finance, resources, and capital it is almost impossible to achieve the initial goals laid outwhen establishing alliances. The economy, therefore, plays a crucial role in determining whether a joint venture between different entities will achieve the objectives laid out by its founders or not. Proper financing is key in building these corporations from the ground up, and without it, the venture is doomed from the start. It is also important to consider the economic stability of thecountry in which to set up these corporations. Fluctuations in a country’s economy can lead to severe losses, stress in business relations, conflicts and eventual shut down of these ventures. In 2008-2009 the economic recession crippled several world economies leaving many multi-billion corporations bankrupt or struggling to get back on their feet.Social factorsKnowing the social setup of local communities where corporations due to joint ventures are intended to be established is also key in determining their success. It is important that the setup of the corporation is in harmony with the local community and directly involves the local people in development projects at a community level. The company should be set up in a social environment where it can comply with the local rules and regulations and promote growth through outreach programs. Cultural differences should also be considered by top management of the merging companies. These will ensure that both parties know what to expect regarding language and behavioral variations.
Political factorsIn a volatile world where politics and bureaucracy influence decision-making from the highest tothe lowest ranks, it is important for management officials to be politically conscience before committing to mergers or alliances with their foreign counterparts. Different nations have different political systems, and it is important to understand these systems for joint ventures to materialize into successful corporations. For instance, a country like the United States follows a capitalistic type of political system whereby individual and private enterprises are widely promoted whereas China uses a socialistic type of political system whereby communal and group enterprises are favored over individual ones.Question 1(b): Changan-Ford joint venture success factors and problemsThe Changan-Ford joint venture is a classic example of an alliance that can be used to highlight the challenges as well as the positive results that can arise from such partnerships. Changan, a Chinese automotive company, merged with Ford of the United States to form the Changan-Ford automotive company in 2003. This was in a bid to offer better products to the large Chinese market while at the same time trying to overcome economic challenges such the financial crisis of 2008. Although the venture was successful on many fronts, it also faced some problems in the early stages of its inception. Some of its successes and problems are outlined as follows;Success factorsSome factors influenced the positive growth of the joint venture between Ford Motor Corporation and Changan Auto Co. Ltd. At the time of the inception of this venture, China whereChangan Auto is based and which was to be the host nation of the venture was going through an exponential economic growth. This made it a suitable country to host such a venture by providing the type of economic stability that was required to ensure eventual success.China also offered a much-needed market for products offered by the Ford Motor Corporation. The Chinese people viewed cars produced by Ford to be of superior quality as compared to thoseproduced by local companies. At a time when more people were beginning to afford cars, the demand for Ford cars surged, and this influences the success of the partnership with Changan.Another factor that pushed this alliance towards success was the fact that Changan Auto had been manufacturing cars for the Chinese people for more than a century. It was thus easy for the Chinese people to relate to products from the joint venture and even more so if they suited their demands. Therefore, by partnering with Ford, Changan was able to still meet the Chinese people’s need for an indigenous product with American standards of quality and reliability.
Problems faced in the Ford-Changan joint ventureThe merger between Ford and Changan was not without challenges especially during the early stages of its inception. This was mainly due to the different backgrounds of the two companies. Ford is based in the United States and operates on western ideologies while Changan based in China mainly operates under Chinese ideologies backed by the Chinese communist government. To overcome these problems, it was important that top management from both companies first identified them before finding viable solutions. One of the most dominant challenges that faced the joint venture was the difference in political ideologies and systems. These ideologies trickled down to management and low-level employeesat the joint venture plants influencing their productivity and problem-solving approaches. American employees at the plants based in China had to learn compromise and sometimes conform to these ideologies to avoid conflicts.There was also the difference in traditional cultures. While the Chinese culture promoted collective decision-making and problem-solving through communism, Americans preferred to tackle situations individually rather than as a group. This always got in the way of productivity and could sometimes lead to conflicts between different factions.Chinese people speak Mandarin whereas the American employees spoke English. Language barriers could often lead to a breakdown of information, misinterpretation and costly mistakes. As a result, American managers, as well as their Chinese counterparts, had to spend time using interpreters and learning the language to be able to communicate efficiently.Another problem presented itself when Mazda became a stakeholder owning 15% of the company. Mazda being a Japanese company did not go well with the Chinese market due to historical and cultural conflicts. After this partnership sales started slumping and eventually Mazda had to break away and form another independent partnership with Changan.Question 2(a): Cultural differences between western and Chinese managers and their influence on management policiesThere are some differences between the western and Chinese culture that led to discrepancies in the chain of authority when the joint venture was initiated. Although most of these differences were counterproductive, some helped in the better understanding and improvement of the management structure. These differences had to be studied and taken into consideration so as to come up with a system that was accommodative to both cultures.One such difference that influenced policy and decision-making among the managers was the fact that while the Americans considered working as individuals and taking responsibilities at a
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