2.2 Clear Roles and Responsibilities
Generally speaking, the clear roles and responsibilities should be established for each partner to ensure the smooth operation of the JVC (Dawson 1997). People will always perform better when they have a clear understanding of what they are expected to contribute. It is especially important for JVCs, because they across organisational boundaries and therefore create a situation in which lines of authority are not always clear (IJV notes 2006). The main problems in role making are role conflict, and role ambiguity. Given the presence of two or more parent companies, managers are likely to experience considerable role conflict and role ambiguity (Child, J., et al. 2005).
Role conflict arises when the priorities of one parent organisation conflict with the other, while role ambiguity arises when the general management of JVC is unclear about the expectations which various key groups have of it. The latter one is caused by the lack of clarity about what is expected of it, and the former one is by differences in the expectations (Child, J., et al. 2005). To avoid the problems, the JVC should define clear roles and their responsibilities in the team. These issues need on-going monitoring and management, in order to deal with the changes over time (IJV notes 2006).
An important role of the team should be pointed out is the leader. A research indicates 49% failure of JVs is due to poor or unclear leadership. The effect of leader in the team is the most significant. They manage the job-oriented and people-oriented tasks. Both of them are important for accomplishing group performance and satisfaction. It is an important role to build a coherent team. Besides defining the clear roles and responsibilities, the leader should be selected cautiously.
2.3 Cultural Diversity
Cross-cultural management is the key issues of international companies. How to manage cultural differences is the key factor for the success of JVC. Culture can be considered as a barrier, or challenge, or even a resource for JVC (Child, J., et al. 2005).
In JVC, the staff from the parent companies have different cultural background. It is an important issue to integrate them into a coherent team. The cultural diversity has many implications for group performance. Research has generally shown that groups with a substantial degree of cultural diversity are not able to solve complex problems as effectively as homogeneous groups (Konopaske and Ivancevich, 2004).
To manage the cultural diversity, there are three policy options (Child, J., et al. 2005):
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Synthesis is a policy aiming at cultural integration on the basis of a melding of both partners’ cultures;
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Domination is a policy aiming at cultural integration on the basis of a dominance by one partner’s culture;
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Segmentation is a policy aiming at an acceptable balance between each of partner’s culture, but not integrating them.
The three policies have their own advantages and disadvantages. How to choose to manage the cultural diversity depends on JVC’s management style. Cooperate with partners with different culture should be careful. The misunderstanding is common in this condition. The communication and learning with each other is helpful to cope with the problems.
2.4 Conflict in Teams
The conflict may occur in teams when JVC tries to integrate the staff from partners. There are many reasons for it. Some of the more important ones relate to limited resources, communication problems, differences in interests and goals, different perceptions and attitudes, and lack of clarity about responsibilities (Sanchez, et al., 2000). A case about Haier Company will help to illustrate it.
Haier, Chinese appliance maker, has the first Chinese major manufacturing plant in the U.S. It is slowly but clearly importing its corporate philosophy and culture to its Camden, South Carolina, plant. The upper management and the technical group is Chinese and the operating employees are American. The American employees at plant are majority at the plant. The Hair Chinese group is using the 6-S concept, which is an adaptation of Japanese quality control concept (Konopaske and Ivancevich, 2004). The U.S. employees prefer to stick photos on the wall. This comes into conflict with one ‘S’ of the 6-S concept, seisoh (keep the workplace clean). Haier pays more attention to quality, this behaviour is not permit. With communication, they all agree that the photos can be showed out when not at work. Another conflict in the team is about the punishment. The punishment is let the employee with the worst performance stand on the big footprint to criticize himself loudly. In American’s view, it infringes their rights. In this condition, Haier changes the punishment to encouragement. They let the best employee stand on the big footprint and speak out they are the best.
The conflicts in the case are caused by different cultural habits, and attitudes. The case presents how Haier solve the conflict and blended its corporate style to one of its oversees plants.
We can see from the case, communication is quite important in the team. With communication, we can understand each other better, and find out the reason of conflict. In this way, we can build a better inter-personal relationship, and enhance trust, too. And building trust between the partners through encouraging personal relationships between the staff, who have to work together for the JVC to succeed: senior managers, functional managers, engineers, and technical staff is to ‘establishing the right one’ (Yoshino and Rangan, 1995), the one coherent team.
3. Maintain Relations with the Parent Companies
The JVC is usually set up to contribute to achieving the objectives of its parent companies. Therefore, it is important for JVC’s long term management to maintain good relations with the parent companies. The parent company’s contribution and intervention will affect the JVC’s performance significantly.
3.1 Intervention
Although JVC has independent equity, it can’t live without the parent company. The intervention of parent company to JVC is the control. Generally, there are two forms of control: direct control and indirect control (Johnson, J.L., et al 2001). Direct parent control is similar to dominant management. The parents attempt to “influence activities or decisions in a way consistent with its own interests and expectations." Indirect control is based on the IJV's need for consultation with the parent firm, similar to shared management (Johnson, J.L., et al 2001).
The control bases on the parent’s equity position. The fifty-fifty ownership is a common form. These JVCs are usually shared management. When one partner holds a majority shares, the JVC seems to apply dominant management or split management. Bleeke and Ernst (2002) indicate the fifty-fifty equity JVCs are not as successful as the split ownership JVCs in which one partner has majority shares. 50-50 ownership can build trust through the mutual success, but it indeed has many problems. The case about control in the Dowty-Sema JV (Faulkner 1995) shows the problem clearly.
Dowty-Sema was a JV set up by the two eponymous companies with 50:50 equity in 1982 to provide command and control systems for the British navy. Dowty provided the hardware and Sema provided the software. The venture company was largely a ‘shop window’ for tendering, in that the 100-odd staff were all assigned to the payrolls of one parent or the other, dependent on their function. Software engineers were assigned to Sema and hardware engineers to Dowty.
Control was exercised in the following way. A project was divided up between the two companies and 90 percent of it was carried out in the parent companies, leaving only 10 percent, principally project management, for the venture company to do. Dowty controlled contract negotiation and administration and Sema controlled finance. Each parent appointed its own project teams, and an element of competition and tension developed between them. The board membership was 50% from each partner. Difficult decisions led to very lengthy meetings by a committee of the board. The venture grew to £50 million sales but unclear control meant that deadlines were missed and the venture made no profit.
From the case, we can see the inefficient management of 50-50 equity JVC. But it doesn’t means 50-50 equity JVC always perform worse than other form management. It depends on the relationship with partners and good communication between JVC and parents’ companies. And no matter what kind of control of parents’ companies, the constant presence of a parent interferes with the development of organisational cohesiveness within theJVC.
3.2 Learning & Contribution
The activity of organisational learning is the way for the company to gain knowledge for its partner. These activities affect the prospect of JVC. The communication with parent companies to transfer technology from them to JVC is one of the key success factors.
The collaborative attitude allows for JVC learning by both partners and is likely to be more productive over the long run. There are three levels of organisational learning: technical, systemic, and strategic (Child, J., et al. 2005). Collaboration with partner organisations offers a potential to learn at all three levels. It can provide access to techniques, facilitate the transfer of new systems, and enhance a firm’s ability to undertake new strategic initiatives (Child, J., et al. 2005). The case about GM-Suzuki joint venture can be used to explain the learning and skills transfer to JVC.
CAMI Automotive, Inc., was set up to manufacture low-end cars for the U.S. market. The plant, run by Suzuki management, produces the Geo Metro/Suzuki Swift, the smallest, highest gas-mileage GM car sold in North America, as well as the Geo Tracker/Suzuki Sidekick spot utility vehicle. Through CAMI, Suzuki has obtained access to GM’s dealer network and an expanded market for parts and components. GM avoided the cost of developing low-end cars and gained models it needed to help revitalize the lower end of the Chevrolet product line and to improve GM’s average fuel economy rating. And once the CAMI factory reaches full capacity, GM took it as a test bed for to learn Japanese management of work teams, flexible assembly lines, and quality control (Bleeke and Ernst, 2002).
The case indicates if the partners both bring specific strengths, both will benefit. JVC maintain relations with parent company to improve their performance. In the CAMI case, JVC run smoothly and reach the full capacity. From the parent organisations’ view, JVC is a great place to learn from partners.
When we discuss learning and skills transfer, the intellectual property rights (IPR) is an important issue in an ongoing JVC. Legal protections go only so far. In addition to IPR protection of their own, the new technology and intelligence in JVC should be identified the ownership.
Three structural tactics can protect IPR successfully (Bleeke and Ernst, 2002). First is to separate sensitive technologies from JVC. For instance, GE modularized the production of high value-added engine-core components to protect its know-how from Snecma. Second, some companies centralise contact points between the JVC and the parents. It is easier in highly centralised companies like Japanese businesses, than in more decentralised firms, like Western ones. Third, they combine complementary strengths and can not succee without the other. Toshiba and Motorola would not keep their strategic position if either terminated the alliance, because the two companies have such a high level of interdependence in the form of shared factories, distribution, and complementary specialised skills (Bleeke and Ernst, 2002).
3.3 Conflict
JVC success is often an ambiguous notion (Dussauge and Garrette, 1999): should attention focus on the success of the JVC itself—i.e., its survival, duration, growth, and profits—or should it focus on the positive or negative consequences of the alliance for each of the parent companies? It is a dilemma, parent–local management conflict.
Johnson, J.L., et al. (2001) indicates there exits the logic that parental control of the IJV keeps IJV management loyal to the parent and focused on the parent's needs. In such cases, although partner–partner conflict may result, control should reduce any. On the other hand, the characteristics of JVC can create an independence. JVC is not only separate legal entity, it is also a new established organisation, staffed by entrepreneurial managers, and quickly develops an entrepreneurial culture. In such cases, a prevailing climate of "we versus them" may lead to increased parent–local management conflict when parents intervene in IJV operations.
There is a case about a JVC. The aim of foreign partner is to develop its business in the targeted country and the goal of the local partner is to derive adequate profits from its investment. The profitability of the JVC is strongly affected by decisions made by the parent companies. When the strategic direction of parent companies has changed, it affects the performance of JVC significantly. A typical example of this is when a multinational parent decides to limit the exports of the JVC to a neighboring country because that local market can be more profitably supplied via a wholly owned subsidiary confronted with excess capacity. The consequence of such a decision is decreased sales and profits for the JVC (Dussauge and Garrette, 1999). But in another way, they may offer opportunities for JVC to propose new activities which will contribute to its long-term development.
We can see the importance to maintain relations with the parent companies from the case obviously. The performances and strategy direction of parent companies even determine the JVC survive or not.
4. Manage Divergent Requirements
The aim of each of the partners to run JVC is to achieve their own objectives. JVC can help the company to collaborate with their partners to cancel out the weaknesses through complimentary strengths of partners. Though it is set up on the base of mutual benefit, the benefits they try to acquire through their partners are different. In JVC, the divergent requirements of the partners are very common. They stand on their own profits, and can’t make the appropriate decision for JVC. It causes disputes and conflict between partners.
4.1 The Partner-Partner Conflict
The Partner-Partner conflict is caused by divergent partner expectations. Johnson, J.L., et al (2001) indicate the IJV parterres usually act as independent constituencies, not go into an integrated organisation. As JVC is an independent company, they have little or no loyalty to it. And the managers from the parent companies insist themselves as employees of the parent company, not employees of the JVC. When the partners’ requirements diverge in JVC, they stand by their parent company to obtain the limited resources. This leads to Partner-Partner conflict within the JVC.
The conflicts or disputes concern not only the benefits decision-making process, they occur in various aspects in JVC, for example, management style disputes, financial disputes, division-of-tasks disputes, etc (Matthews 1999). These are the conflicts in parent control, and the greater the parent company's direct or indirect control in JVC, the more partner–partner conflict.
4.2 Solutions
Lin and Germain (1998) consider there are four conflict resolution strategies: problem-solving, compromising, forcing, and legalistic strategy.
Problem-solving is a solution try to satisfy both parties’ needs (Pruitt 1981). It involves discussing openly concerns, priorities, ideas, and issues. The compromising strategy in IJV is for manager to seek a middle ground between the initial positions of the two sides. Forcing strategy is to attempt to make decision unilaterally. One partner of JVC may call on their side’s equity position or technical or management expertise to press the other party (Killing 1983). Finally, legalistic strategy is for IJV manager to resort to written contracts and informal binding agreements to obtain the desired outcome to conflict. It is similar to forcing. The legalistic strategy presses the other partners to comply. The legalistic approach is contractual and formal to resolving disagreements of the partners (Lin and Germain 1998).
All of the four solutions can solve the conflict. They should be chosen carefully. For example, the legalistic strategy may be appealing because it can solve the problem in a formal way and seek legal protection. But it has negative effects on the performance of company, and it will break the relation with the partners. It is the last and the most serious way to deal with the conflict.
The problem-solving solution is the best way, and has positive effect on the business performance. Actually, the longer a JVC operated, the more likely it is for the partners to rely on problem-solving behaviour (Lin and Germain 1998). It is the most difficult way, too. It needs the close relation and trust between partners. They trust each other and believe they can both meet the acquirements they expect to.
It is hard to estimate the effect of compromising and forcing strategy on the performance of JVC. Compromising strategy is suitable in the first period of JVC. The partners try to cooperate with each other, and improve the relations gradually. As to forcing strategy, the dominate side will get more benefits because of their equity shares or contributions to the company. In these two ways, the partners can’t achieve best satisfaction. Especially in forcing strategy, the relative weaker side of JVC is in a passive position. The negative feeling of them may affect the partner relation, and affect the JVC’s performance consequently.
Actually, in many conditions, when the divergence can’t be managed in JVC, the JVC may be impossible to continue the relation. JVC comes to the end of its lifecycle. In this way, JVC may be separated, or acquired by one partner.
4.3 Prevention
The disputes and conflicts due to such divergent requirements are common in JVC, but it indeed go against the operation of JVC. In order to prevent these conflicts, and minimise the effects, three dispute-avoiding mechanisms (Matthews 1999) could be considered in JVC. They are structure, culture, and choice of personnel.
The partner firms must set up a management structure capable of proceeding with day-to-day operations while respecting the aims and points of view of both partners.We conceived the structure of an IJV as being almost independent of the personalities of the people that comprise it, with strengths and weakness, and a character of its own. The basic two properties of the structure are completeness and logic (Matthews 1999).
The culture refers to the roles and responsibilities and the communication mechanisms, which are discussed in section two. One thing should be pointed out is the regular emails, meetings or other form communication will help the on-going negotiation between partners and avoid emergent divergent requirements. The last is the choice of personnel, which is discussed at the beginning of the article. It ensures the right people in the right positions to build an effective team. They may work perfectly to prevent the divergence of partners.
5. Conclusion
Through the illustration above, we can get some ideas about the JVC management. Yoshino and Rangan (1995) identify a number of ‘critical tasks’ for alliance management. Indeed there are many other issues in terms of long term management of JVCs. The main issues discussed here are to only deal with the various relations of JVC. The internal relation is discussed in building a coherent team in JVC. The section of maintaining relations with the parent companies talks about the relation between JVC and parents. And the last is to deal with partner and partner relations involved in JVC.
Nowadays, JVC is become more and more popular in the global economy environments. The on-going management of JVC should be further discussed in the future to achieve the success of JVC.
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