Case Study: Factors Influencing Joint Venture Success - Changan-Ford

This case study provides a comprehensive analysis of joint ventures, using the Changan-Ford partnership as a primary example. It explores the key factors influencing the success of joint ventures, including physical, economic, social, and political considerations. The study delves into the Changan-Fo...Read More

CASE STUDY: JOINT VENTURES
Question 1(a): key factors influencing the success of joint ventures
Several 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 factors
The 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 extensive
consultation 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 be
mutual 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 factors
Without finance, resources, and capital it is almost impossible to achieve the initial goals laid out
when 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 the
country 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 factors
Knowing 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 factors
In a volatile world where politics and bureaucracy influence decision-making from the highest to
the 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 problems
The 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 factors
Some 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 where
Changan 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 those
produced 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 venture
The 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 employees
at 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 policies
There 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

personal level, their Chinese counterparts preferred handling tasks and responsibilities as a
group. This was largely in part due to the differences in the American and Chinese culture.
While the American culture promoted individual diligence and responsibility, the Chinese
traditions promoted social integration and working as a group to solve laid out objectives.
Although this was mostly a source of conflict, it also helped build a diverse approach through
which a consensus could be reached on contradicting ideologies.
The differences in western and Chinese culture also influenced the approach employees took in
relating with management. While the western ideologies promoted a head-on confrontational
approach, the Chinese preferred an authoritarian way of addressing their superiors. This often
resulted in counterproductive conflicts within the Ford-Changan joint venture because while the
Americans viewed open criticism as transparent and progressive, their Chinese counterparts
found it insulting and disrespectful.
In the Chinese culture, great importance is placed on personal relationships between employees.
This is in tandem with the ideology of social harmony whereby for a society to coexist
peacefully the individuals must have a good relationship at a personal level. Western culture, in
contrast, focuses on separating personal life from the workplace. This contradiction became an
evident setback that needed overcoming in the Ford-Changan alliance with both parties having to
acknowledge the other’s point of view.
Question 2(b): Policies that can be taken to address cross-cultural issues
Based on the findings from the Ford- Changan joint venture some steps can be taken to ensure
that most of the challenges expressed are avoided in similar undertakings.
Cultural awareness within the involved factions is of key importance to overcome
misunderstandings that may arise from ignorance of the same.
It is also important for such joint ventures to come up with conflict resolution techniques to
prevent minor misunderstandings from becoming major counterproductive conflicts that can lead
to damages and huge losses.
Seminars should be introduced to promote workplace etiquette and push for high standards of
professionalism especially since most of these corporations are multi-national companies.
Top management from both sides should be able to recognize the cultural differences and come
up with social programs that integrate these differences by outlining their benefits and how
diversity can be used as a tool in the creation of new ideas.
In cases where there are language barriers, special programs should be put in place to train the
employees on proper communication skills to prevent misunderstandings.

Question 3(a): key objectives of the Ford- Changan joint venture and the extent to which they
were achieved
In every alliance between corporations there are always a number of priorities and goals that
should be met for the partnership to remain relevant. The Ford- Changan joint venture was no
different and although some goals are still pending completion, most of the set goals have been
achieved
Among the objectives that stood out when the joint venture was set up was the development of
new American models for the Asian (Chinese) market that would fulfill the demand for American
cars, which were perceived to be of superior quality to locally manufactured brands. This goal
was swiftly achieved after the inception of the alliance by introducing new models such as the
ford fiesta and focus models.
Besides fulfilling the Chinese appetite for western brands the joint venture also set out to rake in
profits by increasing the number of units sold. By the year 2009, this goal had also been fulfilled
through an increase in sales from 210,000 units the previous year to 319,000 units that year.
From its inception, the joint venture also faced a huge challenge in communication between
Chinese and American workers. This created problems in productivity and efficiency between
the Chinese and American factions and was something the alliance had to overcome if it was
going to become an eventual success. To overcome this, the venture introduced exchange
programs to enhance communication skills and promote language awareness and with time,
major language barriers were eventually overcome.
When Ford and Changan were partnering up, another set goal was the integration of Chinese and
American cultures and the promotion of exchange of ideas. Due to the stack difference of
Chinese and American cultures, at the beginning of the joint ventures Chinese and American
workers had different approaches to decision making and ideologies about work. To solve this it
was paramount that both factions understood the strengths and shortcomings of each other’s
cultures so as to use these differences to form new ideologies that cut across both cultures hence
promoting integration.
The Ford- Changan joint venture was also a way to popularize the Ford brand in Asian markets
especially China which with the turn of the 21st century had become an economic powerhouse.
This objective was swiftly achieved with the infiltration of Ford models such as the Fiesta and
Mondeo that ensured Ford motors maintained a competitive edge over other western automakers.
Another reason why the alliance was initiated was to strengthen the signatory corporations in the
face of fluctuating markets and erratic economic changes. The economic resilience of the Ford-
Changan joint venture was tested during the recession of 2008 and apart from a few minor

cutbacks and change in policies, emerged unscathed. This shows the direct impact the alliance
had on the partner corporations.
Question 3(b): Threats facing joint ventures and Recommendations
The challenges and imminent threats facing the survival of joint ventures such as the Ford-
Changan alliance are erratic and ever changing. It is therefore important to identify these threats
and find ways to eliminate them before it’s too late.
Economic threats
These are threats that arise due to the unstable nature of the local economies where joint ventures
are established. The unpredictable nature of today’s major economies make it almost impossible
to foresee the future and these can make it almost impossible to put measures in place that ensure
the survival of alliances during tough times.
It is therefore important that joint ventures dedicate a portion of their resources to the study and
analysis of economic changes and have stimulus back up plans that ensure the survival of the
joint ventures in cases of financial crises and/or recession.
Mismanagement
Most joint ventures that take place between corporations from different nations have complex
management structures. More often than not this leads to misinformation, confusion and a break
down in policy implementation. If the situation is not remedied it can lead to huge losses in renue
and the eventual bankruptcy of the joint ventures
To prevent this, the partner corporations should come up with a simple leadership structure that
is straight forward and inclusive to all parties. It is also important that competent personnel are
chosen to run these corporations to avoid wastage and promote consistent productivity.
Political threats
Majority of joint ventures happen among corporations from different nations and with each
nation having its own political system and government policies, instability can be an issue that
proves detrimental to the survival of these alliances. Bad government policies are potentially
harmful to the growth and development of established alliances and can lead to the joint ventures
failing.
Prior to the setting up of these joint ventures, the political stability and governmental policies of
potential host nations should be taken into account and the best options adopted by stakeholders.
Environmental and cultural threats

The environment in which the joint ventures are set up is also key to ensuring their survival. In a
world where there are constant environmental concerns, joint ventures especially of an industrial
nature should ensure that they abide by the set environmental standards to prevent civil actions
against them
Cultural concerns are also a constant threat and may deter the growth of alliances between
multinational corporations if not handled properly. It is therefore crucial that the involved
corporations create cultural awareness and promote exchange of ideas and integration among
their employees to ensure a flow of ideas and prevent conflicts that can be counterproductive to
these joint ventures.