PGBM04: International Business Environment Joint Venture Report

This report provides an in-depth analysis of joint ventures within the international business environment. It begins with an executive summary highlighting the benefits of joint ventures, such as enhanced market access, economies of scale, risk reduction, and knowledge sharing. The report then delves into cultural theories, specifically Hofstede's cultural dimensions, to explain cultural differences between countries like the UK and India. It explores the power distance, individualism, masculinity, uncertainty avoidance, long-term orientation, and indulgence dimensions, illustrating their impact on business operations. The core of the report addresses the cultural challenges faced by firms in joint ventures, including communication barriers, leadership style differences, organizational culture clashes, and market expectation discrepancies. Finally, the report concludes with recommendations for successful joint ventures, emphasizing the importance of cross-cultural training, defining clear policies, and fostering respect for each partner's organizational culture. The report uses examples of joint ventures like Honda and Hero, and Zara and Tata groups.

INERNATIONAL
BUSINESS
ENVIRONMENT

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Executive Summary
Joint Venture allows the companies to make access to the new markets at a much faster rate.
This report illustrates the several benefits of Joint Venture. It is found that joint venture
enhances the economies of scale for the companies, it reduces the risks, and it improves the
knowledge of both the firms. This report also illustrates the difference in cultures between the
two countries with the example of India and United Kingdom. In the latter section of the
report the challenges faced by the firms in Joint venture has been elaborated. It was found
that managing partnership becomes difficult due to the communicational barriers, leadership
style differences, organisational culture differences, and market expectation from foreign
companies. In the end recommendation about the way in which Joint venture can be made
successful is elaborated where it was found that cross cultural training and defining of
policies so that stakeholders of both the companies respect each other’s organisational culture
is necessary.

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Contents
Executive Summary...............................................................................................................................1
Introduction...........................................................................................................................................2
Joint ventures.........................................................................................................................................2
Cultural theories....................................................................................................................................3
1. Power Distance......................................................................................................................4
2. Individualism.........................................................................................................................4
3. Masculinity............................................................................................................................5
4. Uncertainty Avoidance..........................................................................................................5
5. Long Term Orientation..........................................................................................................6
6. Indulgence.............................................................................................................................6
Cultural challenges that is faced by the firms........................................................................................6
Benefits.................................................................................................................................................8
Recommendation...................................................................................................................................9
Conclusion...........................................................................................................................................10
References...........................................................................................................................................10

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Introduction
International business environment has changed drastically and there are many companies
that are crossing borders to do business. Among the various entry modes that are being
selected by the companies Joint venture stands to one of the most effective strategies that are
being used by the firms. There are many cultural barriers that arise in this process this is
because the culture of the companies are somewhat influenced by the culture of the nation
hence there is huge difference (Killing, 2013). There are people from different parts of the
world working in an organisation and hence organisational culture has to be developed
appropriately according to the difference in culture. This report is going to illustrate the Joint
Venture and its benefits. It also explains the cultural theories that are applied in the case of
Joint ventures. It also elaborates about the cultural challenges faced by the companies going
into Joint Venture. At last different aspects of the Joint ventures is being illustrated.
Joint ventures
Organisations crosses border to enhance their source of income and at the same time it also
enhances the profitability of the company. The increase of profitability and profit growth firm
can be achieved by adding value, lowering cost, selling more in the existing market, or
expand globally. Joint ventures are one of the highly used entry mode strategies that are being
selected by different companies so as to expand in the foreign markets (Kumar, 2010). Joint
venture is understood as the association of two independent enterprises to share resources and
risk on a temporary basis or permanent basis, for a particular project or for longer time.
Working as a joint Venture with foreign partner needs a critical selection of the country to
invest along with the risk and opportunity assessment of the same. It is also characterised by
shared governance and shared ownership. There are basically four points that an organisation
has in the mind to choose this as an entry mode strategy. They are also understood as the
benefits that Joint Venture provides to its business:
 It gives access to new market especially in the emerging markets: Since in some of
the nation 100% is not permitted hence it becomes critical for the management to find
a way in which they can do Joint Ventures to gain access of that market (Meschi and
Wassmer, 2013). For example Honda which was one of the major manufacturers of

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Automobiles of Japan wanted to do business in the Indian market hence they started a
Joint Venture with Hero. They both proved to be success in the Indian market.
 It also enhances the scale efficiencies by combining operations and assets: Since both
the companies have separate set of assets, and capabilities as well as resources. This
enhances the overall resources of the company which is critical for the management to
ensure competitive advantage over the rivals. The increase in resource base allows
firms to have greater control over the market as they will be encouraged to do
business without any limits (Deitz, et al. 2010). For example the Joint venture
between Zara and Tata groups was to enhance the reach of Zara into Indian market.
This Joint venture gave Zara with distribution network which alone Zara could have
never achieved or it would have taken a long time to achieve.
 Enhances risk taking ability: It also allows the companies to share the risks in the
business that might arise due to the challenges that is present in the business
environment of that country as well as the cultural difference between the two nations
from which the companies belong to. This can be understood by the fact that since
when a company enters into the market, there is a high probability that it might fail
(Sun and Lee, 2013). For example Star Alliance and One world went into Joint
Venture so as to ensure that their sustainability in the international markets remains in
the risks posed by international business environment.
 Enhanced knowledge: It allows companies to enhance the knowledge base of each
other. On the basis of it, they can do research into new areas that can give them
competitive advantage over the rivals. It will also create a new space in the market for
the companies which are critical for achieving success in the International market
(Ertug, et al. 2013). This is also true in terms of the fact that there are people are
looking for some specific type of products which might not be available with one
company but when combined then they might be able to deliver such products. For
example BMW and Toyota made a Joint Venture for doing research in the areas like
vehicle electrification, ultra-lightweight materials and fuel cells.
Cultural theories
There are different cultural theories that can be applied to understand the cultural challenges
and complications that are faced by the international firms going into Joint Ventures. There
are many people from different parts of the world working inside a firm and it is critical for

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the management to make sure that they provide an organisational culture within the firm
made from Joint venture that can support the respective cultures of the two countries (Nam,
2011). In this regards the best cultural framework that can be applied is Hofstede’s cultural
dimension. It helps in understanding the difference in the cultures of two countries on the
basis of different dimensions. It also helps in understanding the impact on the business
operations. However the model does not show every aspect of the nation culture and its
impact on the company’s culture.
For understanding this suppose a company will go from UK to India for doing Joint Venture
then the impacts can be understood on the basis of Joint Venture.
1. Power Distance
This aspect tells that not every individual in society is equal. The less authorized members of
institutions and organizations within a country and the extension of their expectation and
acceptance that authority is disbursed unevenly are defined as Power distance (Hofstede
Insights, 2019). India follows a top-down the structure in society; real authority accumulates
and freezes with the top managers who then reward their employees in exchange of their
loyalty and obedience, hence giving hints of transactional leadership style. Top-down styles
of the communication channel are followed and feedbacks, which are pessimistic in nature,
are never offered up the top ladder.

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2. Individualism
Two types of societies exist one is Individualist and other is Collectivist. Under first society,
it is purported to look after itself, while under second people belongs in groups that are the
type of people who take care of them in reciprocate for adherence.
Above two societies co-exist in India, here living in groups and becoming part of society is
given priority. In this kind of situation, the action of an individual is largely affected by the
opinions of their family, friends, peers and wide social network that one has an affiliation
towards. European countries mainly have Christian as their religion while India has –
Hinduism. They believe in reincarnation which focuses on individualism interacts with the
otherwise collectivist of Indian society resulting in moderate point score on this aspect.
3. Masculinity
Masculinity is defined as that society having traits of a male, such as strength, dominance,
assertiveness, and egotisms. Feminine society, on the other hand, possessing typical traits,
such as being supportive, protective, and relationship adaptive(Lombardo 2018).The focus
area of this culture is on values such as monetary benefits, wealth, prosperity and,
competition. When addressing to masculinity society the investor shall object the idea of
success, accomplishment, and monetary gain. India scores 56 in this type of aspect, and thus
considered as a masculine society.
Each type of society will respond differently, as an audience in the business world. MNE of
Europe Assimilate different either cultures or tailor their message in a masculine or a
feminine way depending upon the requirement of ultimate consumer or viewer.
4. Uncertainty Avoidance
In cross-culture psychology, uncertainty avoidance means how likely individual of the
society are comfortable with the uncertainty and unpredictability. This creates an ambiguity,
which further brings anxiety between individual, and different culture deal anxiety
differently. The beliefs created and methods used to avoid ambiguous or unknown situations
which threaten members and the extension of being threatened is represented by the score of
Uncertainty avoidance (Hofstede Insights 2019).India, however, scores 40 on this factor
having a low to a medium preference for avoiding uncertainty. India considered as an
enduring county with a high tolerance level of unexpected things (Hofstede Insights 2019).

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The attitude of the word ‘adjust’ is normally seen in India, often means from bypass rules or
turn a blind eye in devising a different and inventive solution to overcome the problem,
whereas in Europe country like Germany does not like to stand on uncertainty they plan
accordingly and try to avert the unpredictability. In Germany, society confides to rules, laws,
and regulations. Germany wants to reduce its risks as it has risk avoider society and move
ahead by changing systematically (Culture 2019).
5. Long Term Orientation
Long term orientation means believing in future and short term, on the other hand, means
focusing on the past or present and considering them more important than the future. A high
score on this factor means having a more pragmatic approach, encouraging careful and
effortful ways in the present era as a means to get ready for the forthcoming period. More
priority to methodology and standards while regarding societal modification with skepticism
is given by a below-average score country. Transformational leadership style would be
beneficial for the country having long-term orientation culture.
For example, a low score country as Europe a short period house mortgage loan typically 15
or 20 years is preferred while on the other hand country like China, Hong Kong where one
can find numerous cases where mortgage runs for 80 years or longer (Smit 2012).
6. Indulgence
The extension to which people try to restrain their ambitions and instinct, based on the way
they were raised is dealt with here in indulgence. To some extent, weak control is called
“Indulgence” and relatively strong control is called “Restraint” ( Hofstede Insights,
2019).Understanding this type of culture in starting Joint Venture with India as India
considered as a Restraint society country which describes it as a country inclined towards
strict norms.
For example, more importance is placed on autonomy to speak and personal control under
indulgent culture however, a greater sense of powerlessness is found in the restrained culture
about personal objective (Maclachlan 2013). In India lower approval of foreign music and
films exist along with it has a higher tendency to maintain order in the nation, which one
needs to keep in mind.

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Cultural challenges that is faced by the firms
There are many set of challenges that organisations have to face when it comes to
management of Joint Venture. This is because there is difference in culture and either they
are unable to understand the culture or they are unable to work with each other’s culture.
The biggest challenge for any Country is to understand the complex local culture, market, and
expectations from foreign consumers. It is frequently noticed that cultural differences
between the partners degrade the performance of the venture.
Examples
1. In the year of 2002, Gillette (US) developed the Vector razor. A design was devised
by accommodating a sliding bar, which unclogs the coarse hair and protects man’s
face from cutting. The company runs a test by inviting Indian students who lived in
Boston; the result was pure acceptance of the product and concept. After which
Gillette launched Vector in India, it was a breakdown, reason? The access to water is
very less amid most of Indian man and sliding bar required running water to work
(Berner et al. 2014).
It tells one to understand the culture first instead of doing mistakes continuously and
then learning from them.
Quoting another example has become important because this type of challenge not
only affects resource but time as well and time is equivalent to money.
2. Pizza having origin from Italy is now widely consumed internationally thus
incorporating the culture and resulting in an invention in food culture. Likewise, there
is an increase in demand for Indian costumes in the U.S and Europe these days.
Therefore, it can be said that International business is bringing forth a common
culture, pushing aside all the cross-culture issues (Dinu, 2016).
Some of the other challenges faced by the companies in the Joint Ventures in the case, when
one company crosses border to do business in other parts of the world.
Communication style: Communication style also differs when there is difference in the
culture. It also varies with a different country that can greatly influence the Joint Ventures.
For instance in the stakeholder’s meetings this can be a biggest challenge (Shishido, Fukuda
and Umetani, 2015). For example, in India, the greeting system is entirely different from the
western culture, where instead of an official ‘Hello’ by shaking hands, ‘Namaste’ is said and
similarly in China, there is a system of bowing down instead of shaking hands.

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Leadership Style Issue: Leadership issue in cross-culture cannot be ignored while investing.
If leadership is not tackled properly the issues arising out of such cultural diversity in people,
procedures and strategies will reduce the probability of success (Chang, Chung and Moon,
2013). Failure to perceive and adapt relevant and required situation of doing business in
foreign countries will lead remotely to realize the objective of being successful as global
players.
For removing these two cross-cultural challenges, it is critical that company provides cross
cultural training so that better cross-cultural team can be made by the company which is
necessary for the success of the Joint Ventures.
Apart from this there are certain other challenges that are faced by the company. These are:
 Political: The political culture changes from country to could and this has impact on
the behaviour of the people and also influences the organisational culture of the
company (Banerjee and Mukherjee, 2010).
 Social orientation: The structure of the society also has impact on the behaviour of the
individuals and hence determines the culture within the organisation. The numbers of
cultures living within the country plays a critical role in their adaptability with people
from other cultural backgrounds (Fang and Zou, 2010).
Benefits
As stated in the above section of this report, the benefits that Joint ventures add to the
business are as follows:
 Reducing the Risk: It reduces the risks in two terms first it gives a company a support
in the local market in terms of financial and distribution network (Zenkevich and
Koroleva, 2014). This is because the company is new in the market and hence there is
higher risk of failing if they come in the market alone. For example joint venture
between Stagecoach & Virgin Rail.
 Gaining competitive advantage over the rivals: It is seen that the Joint ventures
enhances the resources and capabilities of the company which is critical for gaining
competitive advantage over the rivals. This is also because JV enhances the synergies
(Yan and Luo, 2016). For example Kellogg and Wilmar International Limited join
hands to sell cereals and other snacks in the Chinese market. This is also because

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Wilmar International provided extensive supply chain and distribution network to
Kellog using which they enhanced their sale in China.
 It enhances the assets and capabilities: Since two different companies have two
different set of assets and capabilities as well as resources. When two companies join
hands then there is more chance that they win in the market (Yeniyurt and Carnovale,
2017). This is also true in terms the research capability they have. For example Uber
and Volvo joined hands to produce driverless cars.
 Enhancing the operational capacity: The operational capacity of the companies
enhances when they join hands and enters into any market (Fan, et al. 2012). For
example the case of Ericson and Sony is a perfect example of how manufacturing of
electronic gadgets and smartphones gets enhanced when there is Joint Venture.
 Creation of new product: The objective of the Joint venture is also sometimes to
develop new products for example NBC Universal Television Group and Disney
ABC Television Group (Park, 2010). Joint venture was to create a video streaming
application or a website named “HULU”. The product gives streaming quality content
which is on mobile phones, laptops or computers.
Recommendation
In Joint venture there are risks that are faced by different companies and it is critical for the
management to think of the best strategies that help the company to manage the Joint
Ventures. There is something that needs to be implemented by the companies. These include:
 It becomes essential for the management to make sure that they understand each
other’s behaviour, language and working style. For this cross cultural training is
necessary (Nielsen, 2012).
 It is necessary that both the firm makes policies that support organisational culture of
each other.
 Make the entry of your enterprise graceful.
 Clear product strategy to enter into the market should be adopted and testing such
product in the target market to ensure success.
 Collaboration, choosing an experienced partner having full knowledge will be
beneficial to survive.
 Be proactive, not reactive by which one can understand (Global 2019).

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 To have a competitive advantage a country-septic management approach is necessary,
and to deal with it, a responsible way should be applied.
 The incorporation of different cultural perspectives into commercial practices will aid
to create a dynamic environment that facilitates enhanced competence to companies
operating across cultures.
 Learning from past and other competitor or businessperson’s past is also
recommended.
 A proper location and market strategy analysis should be done first before entering
(López-Duarte and Vidal-Suárez, 2013).
 The market entry either equity or non-equity should be chosen by prior careful and
proper understanding.
Conclusion
From the above based report it can be concluded that Joint Venture is one of the highly used
entry mode strategies for the company. This gives the time to the company so as to
understand the challenges that they might face in the market. Alone a company might not be
able to understand the requirements in the market and the capabilities that are required for
fulfilling those requirements. It is seen that in terms of 6 dimension hofstede model there is
large difference between UK and India. There are several challenges like understanding gap
between the stakeholders of two companies, communicational barriers and leadership style
that companies had to face while going into Joint venture. For this it is recommended that
cross-cultural training is provided to the employees of both the companies.

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