Managing Global Alliances - Essay Example

? An Analysis of the Role of Cultural Differences in Creating Issues for Strategic Alliances: An Assessment of the Alternative Approaches in Dealing with these Cultural Problems Background Strategic alliances and international joint ventures always show promise of providing better opportunities and results for the parties undertaking them. The parties always come together to use these alliances to attain some strategic business ends which often look very good on paper. However, most of them have proven to be unsuccessful. Many of these alliances end up in conflicts which lead to the collapse of these positive looking ventures. John and Gilles (1996) cite the case of the 1990 merger of the French-owned Renault and Swedish-owned Volvo which ended up in a disaster. The shareholders of Volvo got very upset about the happenings and trends and led to a revolt which resulted in Volvo abandoning merger talks in December 1993 (John and Gilles, 1996: 255). In another twist, the Dutch-Belgium banking merger collapsed in 1989 and this led to several losses in rebuilding (Cartwright and Cooper, 2012). Clearly, these two incidents show that mergers of businesses from two national jurisdictions have some fundamental problems. In trying to explain these issues, Arns identify that before these mergers and strategic alliances can be carried out, there is the need to delineate priorities, goals and motives before these joint legal activities can be carried out (2005). These adjustments come with major structural problems which are sometimes never resolved. In other situations, there are major cultural differences which fuel the dissatisfactions of the key players. These cultural disparities are usually at the corporate and national levels (Arns, 2005). Another theory that explains the collapses of mergers and strategic alliances is that these alliances are often due to economic challenges and scarcity (Pahl and Richter, 2009). This induces businesses with extremely different cultural views to come together to attain given ends. These businesses are so different that they work together and achieve the economic goals. Once those goals are attained, the businesses become sensitive to their cultural differences and this leads to major tensions which often leads to the collapse of mergers. In all these situations, it is apparent that cultural differences play some kind of role in the break up of strategic alliances, joint ventures and mergers. This means that culture is very important and vital in these things. Research Problem This paper sets out to identify the main roots and actual effects of cultural differences in the break up of strategic alliances. In this situation, there will be the need to identify the role of culture in strategic alliances and similar ventures. Also, if this is identified, it is necessary to find ways of effectively dealing with cultural situations and problems to provide results that would enable strategic alliances to thrive. Aims and Objectives The aim of the paper is to “identify the extent to which cultural variations contribute to problems in strategic alliances and examination of the best methods of dealing these cultural problems in strategic alliances”. In attaining this end, the following objectives will be explored: 1. The definition of the key concepts and ideas that intervene with culture in strategic alliances. 2. An examination of how these key ideas and concepts in culture affect strategic alliances. 3. Identification of the key approaches to dealing with cultural problems in strategic alliances. 4. An evaluation of the effectiveness of these alternative approaches in dealing with cultural problems through the analysis of three practical cases of strategic alliances. Literature Review This section of the report would examine key issues and pointers that are necessary to attain a meaningful understanding of the ideas and concepts that are being discussed in this project. The section would draw on ideas and concepts that define and describe the key elements and aspects of the paper and the two major variables of the paper: strategic alliances and culture. Strategic Alliances “A strategic alliance is a cooperative arrangement between two or more organisations designed to achieve a stated strategic goal” (Rakowski and Patz, 2011). This implies that a strategic alliance involves to different entities that come together because they need to achieve certain stated objectives and ends. The second type of strategic alliances are the non-equity based strategic alliances which are governed by contractual agreements (Rakowski and Patz, 2011). These agreements are normally signed without any party gaining a degree of control. “A strategic alliance is defined as a long-term cooperative arrangement between two or more independent firms that engage in business activities for mutual economic growth” (Hyder and Abraha, 2003). This means that strategic alliances are meant to last for a given time frame which is often a long-term partnership. This is different from joint projects which might last for a very short time. Lowe on the other hand identified that the purpose of strategic alliances is “to share complementary resources and capabilities for the purpose of creating stringent value for each organisation.” (2009: 12). This definition is enhanced by the definition of Peng which states that “strategic alliances are voluntary agreements between firms involving exchange, sharing and co-development of products, technologies or services” (2009: 189). Clearly, strategic alliances come with some significant control issues. These issues relate to the kind of agreement or control powers that the agreement imposed on the parties in the agreement. This will mean that there is bound to be some kinds of compromises and tensions that might be necessary to resolve some kinds of disputes and conflicts. This sets the state for disagreements in such alliances. Also, strategic alliances are meant to be long-term relationships. This means that the parties to such arrangements would have to ensure that they are able to maintain control over their workers and ensure that things are done their way. To this end, there are some alignment issues that the parties need to be aware of and they would have to ensure that they meet them. Culture Culture is one of the most important elements and aspects of maintaining strategic alliances (Peng, 2011: Lowe, 2009). Culture provides different social issues which could turn around to become the catalyst for negative conflicts which could lead to the destruction of the company in question. “Culture is the set of values, norms, guiding beliefs and understanding that is shared by members of an organisation and taught to new members as the correct way to think, feel and behave” (Daft, 2009). Culture is the unwritten part of the organisation which defines the way people behave and get things underway. Culture manifests in the form of observable symbols, ceremonies and trends. It is a reflection of the underlying values and symbols of a given group or organisation. Thus, in a strategic alliance, there are two organisations that have different cultural trends and views. These organisations come into the alliance with the different views and approaches that they have to things. Thus, if a conflict arises, the culture of either organisations would influence the way they view these differences. “Culture consists of the ways of thinking, feeling, reacting which are transmitted or acquired through the dominant norms, symbols and values of the organisation” (Piepenberg, 2011: 8). Culture therefore includes the relatively stable set of inner values and beliefs held by a group of people or category of persons. “It is the collective programming of the mind that distinguishes members of one group or category of people from others” (Hofstede et al, 2010: 6). This means that culture influences the way people think and how people carry out their functions. Culture and Strategic Alliances Culture is consolidated in several ways within organisations. According to Daft, there are two main areas within which culture is significant (2009: 377). The first is in the area of internal integration which is about how an organisation internalizes the effects of culture around them. From this angle, the organisation's cultural trends are internalised within the organisation. The second variable is about the need for a company to adapt to external trends (Daft, 2009: 377). Hence, the organisation ends up creating internal trends and identities that are in sync with the external environment. Strategic alliances are based on financial, strategic or objective considerations (Ulijin, 2010). However, cultural differences can lead to serious alignment and adjustment challenges which could put the aligning companies in a great risk of breaking up. This is because when cultural differences are not eliminated, the parties in the strategic alliances might feel very different and this would be the bases of several different conflicts. This could lead to the 'we' versus 'they' kind of situation where the members of the two companies might have different views and this could fuel extremely serious conflicts and disagreements. Thus, viewing the internalising and external adaptation differences that influence the culture of each of the participating companies, there could be the influence of national and corporate cultures which could be conspicuous in a strategic alliance (Ulijin, 2010). Lamb et al (2010) identify that there are three main areas that people relate where the effects of cultural differences can be conspicuous in a strategic alliance. These differences form the basis for various forms of conflicts which could be negative to the survival of a strategic alliance, They include: 1. Indulgent dependency. 2. Reciprocity of personal relationships and 3. Decision making factors (Lamb et al, 2010) 4. Approaches to Dealing with Cultural Problems in Strategic Alliances There are several theories that can be used to explain the methods of acculturation in an international strategic alliance. This paper would discuss the marriage model by Grotenhuis (2001) and the Acculturation model by Barry (1980). The models would be applied to the case studies at the end of this paper to draw inferences about how easy or difficult it could be to carry out acculturation in a complex strategic alliance. Marriage Model Grotenhuis (2001) identifies three main elements of the cultural integration of international strategic alliances. These are: 1. Integration V Autonomy: This refers to the structural dimensions of the alliance. It refers to the degree of independence that each of the entities have in terms of culture and social structures. It defines how well the different players and elements in the alliance can go about their old cultures with or without restrictions. 2. Cultural Fit V Cultural Clash: This refers to the extent to which the different cultures align or mix with each other. For some alliances, the culture fits and there are little or no conflicts. In others the two entities in the strategic alliance have extremely different cultures and this leads to major conflicts which leads to cultural clashs 3. Time: This is a dynamic variable which changes with the age of the strategic alliance. The time variable refers to the way the two entities approach the two variables above and how patterns of the two variables shift at different points in the strategic alliances. From these three major variables, Grotenhuis identifies that there could be three main types of cultures in international strategic alliances (2002). These are: 1. Living Apart: In this instance, the two parties come together because they have distinct needs that the other party can help to attain. In typical instances, one might want to access a given region of the world whilst another has the need to survive. Due to this, geography often separates these entities. Hence, there is some degree of autonomy. And the time variables allows the autonomy to grow into a cultural fit. 2. Shotgun Wedding/Divorce: This is where there is full integration from the onset. The two companies commit fully and they work to attain a given end and due to that, they get their legal integration right before the get to the field to make it work. In this system, the two entities take a risk to make their cultures clash and from the clash, the time variable moves with the hope of providing some degree of integration and then the two organisations would work in peace and harmony. This kind of arrangement comes with a high degree of compromise and understanding. They often end up in divorces when the managers fail to broker arrangements that both parties agree with. On the other hand, it could lead to reverse acquisition where the dominant party acquires the less dominant entity. This way, they change everything fully in order to maintain harmony. 3. Marriage after Engagement: This is a kind of strategic alliance where the parties maintain their autonomy at the onset of the alliance. As time goes on, they push to attain cultural fit and this provides a system of growing together and attaining mutual trust and understanding. As the two entities work together, they get to know themselves pretty well and then build on their past experiences to eliminate differences and consolidate strengths. This leads to efficiency and the elimination of weaknesses. Acculturation Model Barry (1980) examines the ways and means through which two entities with different cultures can work together to attain cultural fit and alignment. In doing this, he examines the position of the less dominant entity in the organisation. This is because in most instances, the dominant entity in the alliance would wield extensive power and control over the strategic alliance. This leads to a situation whereby the lesser entity would be faced with the need to do something to ensure that they survive the dominance and pressure from the dominant entity. In this quest, the less dominant entity comes out with four different approaches in dealing with their need to integrate. This includes: 1. Assimilation: This refers to the situation where the less dominant entity in the strategic alliance relinquishes its identity. They take up the identity of the dominant entity without resisting it. 2. Integration: In this situation, the less dominant entity maintains its distinct identity. However, they remain as an integral part of the new entity. They find variations and ways of doing whatever the dominant party does. However, they do it in a way that is in sync with the values and traditions they upheld in the previous era. 3. Rejection: This is where the non-dominant group withdraws from the dominant group. They do things their way and refuse to adhere to the practices of the other entity. This often leads to conflicts. 4. Deculturation: Here, the less dominant culture evolves. They neither accept the culture of the dominant party nor maintain their old culture and systems. They just remain unique and distinct and they carve a culture that is borne directly out of the strategic alliance. Since cultural matters are significantly a human resource matter, the entities involved would have to do it by following the following steps that are recommended by Briscoe et al, (2010). This include taking notes of the cultures of the aligning entities. From there, they need to record grievances and failures. They should use due diligent processes and methods and after that, monitor for new issues and repeat the process. Evaluation of the Effectiveness of the Approaches to Strategic Alliances There have been numerous strategic alliances and similar arrangements in modern businesses around the world. Most of them have traces of the various theories and they have had some degrees of success and failures. This section of the essay will examine some of the cases and identify the approaches used and their efficiency and effectiveness. Case 1: Renault-Volvo: Shotgun Wedding/Divorce & Rejection Renault is a French government owned entity that encountered numerous losses in the 1980s. In the early 1990s, it posted significant losses in Europe. Volvo is a Swedish entity that is owned by private investors. Volvo had a strong asset base in Europe and was highly specialized. The two entities entered a strategic alliance in 1990 for symbiotic reasons (Burner and Spekman, 1998). They entered an agreement and in the agreement, they were to work together and operate as a single entity. This was a merger that meant that the two entities were to operate as one legal entity. The cultural system of Volvo was tilted towards an Anglo-Saxon system where economic returns was the yardstick. On the other hand, Renault was more of a government-owned entity and numerous arrangements relating to welfare were significant. Clearly, the investors of Volvo were not happy with the cost management system of Renault and their centralisation which connected directly to the French government which was wielding an undue influence (Carpenter and Saunders, 2009). Culturally, the two companies had extremely different preferences and systems. Whilst Renault was oriented towards a public sector entity, the investors of Volvo sought to promote a capitalist model where the maximisation of profits was the key. The Renault staff members had a different view of things. They sought to promote their government's agenda. Culturally, Renault was focused on running a cost reduction system that was based on value for money. Volvo was interested in partnerships that would bring the highest returns. Also, Renault sought to retain a system of production where the focus was on the increment of sales. On the other hand, Volvo sought to focus its competitive strength on the attainment of competitive advantage through the leadership in innovation and research. Renault sought to promote its agenda of selling more and increasing market share. In other situations, Volvo preferred to specialize and focus on a given niche, which was related to the truck markets and heavy vehicles. Renault sought to emphasize on the expansion of its production lines and producing to compete with other global players. The staff of Volvo were used to working for long hours and getting higher pay. Renault was linked to the French government's plan of reducing unemployment and employing more people who worked fewer hours. These demands of the managers of the two entities led to conflicts which eventually caused the breakdown of the merger. In the end, the contract could not really keep the two entities together. The shareholders of Volvo and the workers rejected the approach used by Renault. Talks on keeping them was abandoned by the representatives of Volvo. The French government sought to buy Volvo but that also failed. The agreement was one that was meant to move from cultural clash to cultural fit. However three things were apparent about the failure: 1. There were always disputes relating to culture and philosophy. 2. There was a total rejection by Volvo staff members and 3. There was an eventual divorce. The choice of merging from the onset created a strategic alliance that was filled with problems and issues. This was similar to the shotgun wedding. The partnership was only destined to succeed through a conscious effort to deal with cultural problems right from the onset. It however appears that the effort of the managers of the two entities did not yield much. In the end, the partnership collapsed and the two entities rejected the arrangement on the ground. Case 2: Fuji-Xerox: Living Apart, Integration Fuji (Japan) and Xerox (USA) entered a strategic alliance in 1962. Originally, it was meant to be a 50:50 partnership but in 1997, Fuji became more dominant with a 75% stake. The idea was to enable Xerox get access to the Asia Pacific region and also help expand Fuji's control (Raju, 2008). The headquarters of the alliance is in Tokyo. From the onset, Xerox maintained minimal connection with Fuji. Fuji was trusted and allowed to control affairs whilst Xerox only came in when it mattered. Both entities specialized in their fields of operations with Xerox producing from the United States whilst Fuji controlled affairs in the Asian Pacific market from the Tokyo headquarters. The management of Xerox in Tokyo were just there to represent the interest of their mother company in the United States. As the strategic alliance grew, the two became closer and the patterns were established. It can be noted that the agreement was meant to keep the two parties separate and distinct in their operations. Undue interferences were not encouraged by the agreement. Hence, cultural contact was minimal. Each of the parties entered the arrangement with their distinct culture and none was supposed to bend for the other. Currently, the two entities are still in agreement and they are working together successfully. They are still operating in the rightful manner although Fuji has a dominant stake. In analysing the case, it is apparent that Fuji and Xerox sought to work with each other to learn about each other before committing any further. This can be said to be a case of two entities living apart. In this situation, they neither interfered in each other's culture. Rather, they did their affairs alone and did not try to change anything in the other's space. They respected each other's space and sought to do things just how they wanted to. As time went on, they adapted to each other's situation and when Fuji saw promise in the venture, it integrated further and the partnership remained strategic. Fuji-Xerox continues to persist and each of the two entities does what it knows best and the deal continues to subsist into the future. Case 3: Renault-Nissan: Marriage after Engagement: Assimilation/Deculturation After the failure with Volvo, Renault came under pressure to enter another strategic alliance because in the late 1990s, it was apparent that no car manufacturer could survive without merging since all the competitors, GM and Volkswagon were merged entities and they could get access to the global markets (Hetzner, 2010). The companies entered an arrangement through a cross-shareholder investment. The idea was to promote a gradual understanding of each other and from the case of Renault, it was obvious they wanted to be more cautious than their Volvo divorce. Renault bought a 44% stake in Nissan whilst Nissan acquired a 15% stake in Renault (Betts, 2011). They then went on undertake the following projects: 1. Joint research into vehicle emission reduction. 2. Innovation into small cars. 3. Entry into emerging economies: Brazil and Russia (led by Renault) and India and China (led by Nissan). 4. Entry into other arrangements in Korea and Morocco (Betts, 2011). Both companies maintained their distinctiveness. They all worked with each other and adjusted to attain the best results in several areas. This led to a period of mutual assimilation which has led to a deculturation and the evolution of a completely distinct cultural system that is at work in both entities. Now more and more writers are lobbying for Renault and Nissan to form a stronger corporate entity. Clearly, Renault and Nissan got to know each other in this partnership. They started cooperating with each other for years before they finally decided to work closely with each other. In effect, the two parties stayed with each other, they learnt from each other and adjusted and adapted to each other. The adjustment and adaptation cause them to build a modern and different culture which is relevant and vital in the attainment of results. Although Nissan and Renault are not merged, it is apparent that merging is inevitable. Any future merger is likely to be more auspicious and is likely to remain successful because Renault and Nissan have built a new and distinctive capability in dealing with each other. Conclusion Culture entails the dominant trends and values that shapes the behaviour of a category of people. Strategic alliance are joint agreements and ventures meant to create value for participating entities. Culture really affects strategic alliances and in most cases, it has been blamed for the failures of strategic alliances. There are various variables that are dominant in describing the influences of culture on strategic alliances. One model views the way the less-dominant entity integrates. This is through assimilation, integration, rejection or deculturation. Another is the marriage model which places these ventures into a continuum of cultural fit and cultural clash/ integration and autonomy. Some entities that enter through integration on the onset often start with cultural clashes with the hope of promoting integration. This does not often end up well. Those that often work well are those that encourage autonomy which builds trust and understanding. References Arns, F. (2005) An Investigation of the Role of Innovation in Strategic Alliances Berlin: GRIN Verlag. Barry, J. W. (1980) “Acculturation as Varieties of Adoption” in Acculturation: Theories, Models and Some New Findings Boulder, CO: Westview Betts, P. (2011) Better to Be Bold and Merge New York: Financial Times. Briscoe, D. R. , Schuler, R. S. and Claus, L. M. (2010) International Human Resource Management London: Taylor and Francis. 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