culture and ownership and their influence on success or failure of a joint venture

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Bhat, Akshay 4

which arose out of “cultural differences” between the two companies, the way of working was

different, the accounting policies were different and the management style and workforce

attitudes too were different.

Most of the studies in this field have been mostly empirical evidences, and understandingspronounced from the data available. Since the scope of this paper does not cover detailed

empirical data collection, we shall arrive at propositions based on the Literature Survey and

associate that with a few Joint Venture Success (Success is an outcome which has either

contributed to the synergy in terms of objective (Financial Gains, Product Milestones, Volumes,

Longetivity etc.) Or subjective (Goal attainment, Satisfaction, Work environment, Trust etc.)

(Park and Ungson, 1997), other scholars have defined success as the needs met and

satisfaction experienced by both the partners in the long term (Lane and Beamish, 1990) and

failure which will be the dissolution due to the failure of either one or many of the reasonsenunciated for success.

(“Culture 10 is defined as social

glue”. It serves to bind individuals

and create organizational

cohesiveness. Organizational

Culture, like societal culture more generally, maintains order and

regularity in the lives of its members

and assumes salience in their

minds when it is threatened or

disturbed.)

Scholars further opine, what do wemean and understand by the term

“Cultural Fit” does the meaning

appreciate that two organizations have to be alike in their approaches to amalgamate and

10 Extracted Verbatim from Academy of Management Executive, Page 60)

Figure 1 Types of Culture, Extracted from the Management

Executive, Cartwright and Cooper page 62



Bhat, Akshay 5

generate the required synergy? Culture fit and cultural compatibility is well defined but easily

used terms which more than often are not used correctly or are vague in their application.

Organizational Culture can be understood from the definition stated above in addition to the

widely accepted definitions, but another conservative definition of culture which is a bit importantfrom a business

context is given by the

anthropologist

Edward Hall (1959)

who stated that

Culture is an unseen

invisible force that

holds people captive.But our concern with

success or dissolution

of the JV will concern

us to understand the

kind of culture which

exists in the

organizations pre the

JV and then usingQualitative and

Quantitative

techniques 11 to

monitor the post

combination

performance and

status, for our study

we restrict ourselvesto the four types of Organizational Cultures given by Roger Harrison, while we acknowledge that

there is no one best kind of culture, there are many other kinds of topologies but unlike

Harrisons they are less able to accommodate intra-industry culture differences, many

11 These techniques are stated for further analysis, and are beyond the scope of this paper.

Figure 2: Organizational Marriages: Likely Outcome, Roger Harrison’s model



Bhat, Akshay 7

In the other types of Cultural set ups with increased autonomy and decreasing level of

dissatisfaction are the Role, Task and the Person Culture, studies by researchers have shown

that this is often influenced by the size of the organization, these cultures are characterized by

the openness of communication systems, managerial styles.

But one important aspect given to the influence of a JV success or dissolution is also theTransaction cost theory approach, in which Seng Ho Park and Michel V Russo have made

some important contributions by linking the transaction cost theory to analyze the problem we

are probing. They incorporate the transaction cost theory to state that as joint ventures are

designed to meet the goals of both the individual firms and the collective undertaking, and will

be successful when the value of the collective outcome exceeds the opportunity costs (including

transaction costs) incurred by the participants and the distribution is fair, this is where we find

the work by Richardson important, he has classified the organizations into various types, we will

seek to investigate and propose a hypothesis based on the variables 13 a) Culture ofOrganization A b)Culture of Organization B c) Resulting Culture of the marriage of A and B. and

how these cultures form a resulting cultural fit or a cultural misfit, we also understand that once

the system is jeopardized so is the JV. (Porter and Fuller, 1985 CF from Park and Russo, 1996).

In the study by Wilfried R. Vanhonacker and Yigang Pan in the Chinese Context, they laid an

emphasis on National Culture, Business Scope and Geographic Location to study the impact on

JV’s. But again theorized based on empirical evidence of 73 Joint Ventures. In the propositions

which we will deduce we shall refer the seminal points of this particular scholarly work.

Classification of Joint Ventures based on Interdependencies of Partners.

Joint ventures can be classified on many types 14 , but one important type is the kind of

Interdependency each partner has on the other – this is an important variable (Hennart et al.,

1988). This then divides JV’s primarily as a) Integral Type, where the partners entering into the

JV pool resources and talent of the same nature, for example two vehicle manufacturers come

together to launch a new product for the Asian market, here in this type of JV the market andthe nature of products are very similar to the line of operations of the two parents, this further

opens up a few crucial opinions, the resources and decision making will not be with one

13 We have chosen two party JV’s to analyze this paper14 This is a different type of classification, differ ent from the Type of JV’ s as mentioned in the Introductionpart of the paper.



Bhat, Akshay 8

particular parent as both parents are pooling resources to such an extent that the decision

making is likely to clash on decisions which may be trivial and stretch right from the corporate

level to the shop floor (Killing, 1988) , also this may give rise to leakage problems (Teece, 1986)

this problems construe a gamut of issues arising out of these leakage problems ( Since the two

companies working together are showcasing openly to the other partner their technicalknowhow and processes, it is likely that the other partner can develop an opportunistic behavior

and chose to disobey the contractual understandings). On the other hand the modus operandi

of a Sequential JV are different in this type of Interdependency the final product of one Partner

is the raw material for the other (E.g. A JV between an Engine Supplier and a OEM, to fit the

Engin es into the OE’s Vehicles), this type of JV can be either upstream or downstream, and the

two companies often have a Manufacturing or an analogous gap which are bridged together by

the two companies coming together to form a strategic Joint Venture alliance, in this case there

is haggling over the very important transfer price and the rules, but here one partner can remainoblivious to the operations and the technical expertise and knowhow of the other because the

resources and core competencies are not shared, but rather the value chain is made more

efficient by bridging the gaps and streamlining the processes, here also, the chance of

opportunistic behavior does not become zero, but as Park and Russo put it the chance of

Cultural Clashes and Decision overriding are minimized as resources are not shared, that is

why they h ypothesize that “Integrative JV’s are more likely to fail than Sequential JV’s” .

Institutional Theories and Cultural Integration or Displacement

We focus our efforts on the Institutional Theory, which in a modicum says that, the environment

in which a firm operates has a very high degree of influence on the History and the Culture of

the firm, and they generate two sets of constraints, one being the political, social, economical

and the other being culture and society (North,1981).

The link between competitive advantage and firm capabilities was established by Conner

(1991). Teece (1986) suggested that the firm’s scope of competencies were restricted by the

environment and the location in which they were located. Hence they have limited liabilities tochange their competencies and that the firms learning domain was fixed. These theories will

help us deduce a few propositions which are inherently related to the culture and owner type.

Cartwr ight & Cooper (1993) have stated that in order to achieve their objective, M&A’s must fall

into any of the three types: Extension Mergers, Collaborative Mergers and Redesign Mergers.



Bhat, Akshay 9

Extension Mergers (Open Marriage): Extension Mergers are those types of organizational

marriages where “ any differences in personality or organizational culture between the partners

are accepted unequivocally and are considered relatively unimportant” (Cartwright & Cooper,

1993:64) here the JV’s and the acquired companies cont inue to operate as an extension with

the culture of the JV or acquired company maintained different from that of the parent. Such amarriage type can be classified as an open type of culture, where diversity is appreciated.

Collaborative Mergers (Open Marriage): In a collaborative type, a win-win scenario results,

and a conscious effort by both parent/parent organizations try to take out the best of both

worlds, In JV’s “ where partner equality is recognized ” the differences in the firms are seen as

value propositions and these differences are the avenues from where the success of the JV

stems forth from.

Redesign Mergers (Closed Marriage): In Redesign Mergers the organization, the partners get

divided into either the dominating partner or the non dominating one, the non dominating one is

then forced to accept the condition, Culture and procedures of the dominating partner,

differences as opposed to the Collaborative type of Merger are looked as highly unwanted and

counterproductive. Such a scenario is a win-lose scenario.

The study further makes us cognizant that seldom do real world mergers see an extension

merger type of scenarios, and most of the mergers are mostly the redesign type or the

collaborative type, with the “acquisition cloning instinct” being irresistible. .

The Acculturation Model

The Acculturation Model has 4 different modes depending on the way the members are satisfied

with their existing culture and the way they evaluate and are attracted to the other culture.

A) Assimilation/Marginalization: When the members of the acquired organization accept

or rather get absorbed into the culture of the dominating merger partner, the meeker

partner assimilates into the culture of the dominant partner. The acquirers here conducta culture stripping exercise where in the resistors are displaced, and the alliance

separates or dissolves if the culture of the dominant partner does not get imbibed.

B) Deculturation: Deculturation occurs when the members of the organization are

dissatisfied with their current culture and are also highly skeptical and unsure of the

acquiring or the JV organization.



Bhat, Akshay 12

The above claim of a closeted compartmentalized but yet an entrepreneurial culture in India

which was successful for the early part of the 1950’s where most corpor ate companies were

family driven and had shown remarkable resilience to the changing business environment, is

made concrete with M N Paninis (1988) work on “Indian Corporate Culture” . Further afterIndependence the autonomy of the Indian business houses’ “ interests of corporate have been

made subversive to the national interests ” (Paninis, 1988).He further claims that this paradigm

is slowly changing the Indian corporate culture has primarily two types of controlling cultures

one predominant in the private sector is the authoritarian controlling type and the other

predominant in the public sector was the bureaucratic type, adding that Indian business houses

like the Birala ’s, Tata ’s, Kirloskars , Bajaj’s functioned on paternalistic authoritarian type of

culture where the owners selected the managers based on their (companies’) individual rules,

which sometimes resulted in a disproportionate amount of managers being recruited from theentrepreneurial class. But this culture of the Indian Managers being highly loyal and

entrepreneurial is now changing, there have been shifting trends, even the erstwhile business

houses are were now in the 1980’s coordinating with foreign companies, the Bajaj’s with

Kawasaki of Japan and Mahindra with Peugeot for supply of Engines as India was lagging in the

core competence to develop engines. Further Panini asserts that the Indian Managers after the

advent of the IIT’s and the IIM’s have now developed a new creed of managers, who are both

engineers armed with management degrees, to take a more liberal stances and are possible

change agents, they are different from the erstwhile entrepreneurial managers who wereeducated in foreign countries and were selected by the authoritarian owners, and now a new

breed of a meritocratic culture is developing across all organizations in India, be it private or

public, this has resulted in many MNC’s establishing their subsidiary units in India, and now

after 1994, more than 70 Countries have now entered into JV’s , this while we can say are

primarily for strategic reasons owing to either Expansion, Diversification or Cost Effectiveness

reasons, the new Indian JV’s represent a cultural workplace where ethics, loyalty, meritocracy

and a passion for innovation and excellence is created.



Bhat, Akshay 14

Further, in the chapter by Reichers & Schneider, they state that concepts in organizational

sciences (hence culture which is a variable concept) can exhibit a “predictable developmental

sequence characterized by a series of definable stages.” Therefore with this concept we can

state that organizational culture is a predictable pattern, this statement will form an underlying

basis of further propositions. And as Porter states that allowing a pattern to emerge becomes astrategy of an organization over time 17

Till now Human Resources and organizational behavior were looked upon as “softer” and

“mushier” areas, but newer avenues of improving organizational environment hence culture and

therefore financial performance is an imperative aspect of most JV’s. Along with the firm’s

strategic intent and portfolio, strategic alliances evolve with the firm’s institutional, organizational

and competitive environment, Lewin and Koza (1998) concur that strategic alliances are created

from either an exploitation or exploration objectives.

Therefore we place forth the above propositions which also take into account from the literature

survey that one of the important aspects which one mush consider as an outcome of a JV is the

scope for and also the innovations stemming from it, also management and nurturing of this

innovation will depend upon the type of culture which results out from the marriage, therefore

innovation is not an easy task, and the management of innovation is even more difficult. Also

the Transaction costs which arise out of the JV being formed is also an important aspect if the

transaction cost is high and insufficient to balance the profits and cash flows arising from thesynergy between the JV. Generally open marriages (Extension and Collaborative Marriages)

are good at innovation, but Innovation is a slow process at times and since innovation is not

immediately monetized, the number of patents and research papers from an organization is

often the key to measure the success of the JV. This Innovation offers a “s ustainable

competitive a dvantage” (Christensen 1999). Likewise Innovation will call for better production,

process and services and hence this will in turn improve operational efficiency and

responsiveness (Damanpour and Gopalkrishnan, 2001)

That is why Culture as such which was not held in the same vein as the strategic and financial

considerations of a JV now needs to be placed at the same pedestal, also the study of the

17 Porters 5 forces in which he describes Plan, Ploy, Pattern, Perspective and Position as various conceptstretches of the word Strategy.



Bhat, Akshay 16

or exploitation purposes, but many scholars have not looked into the angle that the core

competencies of two companies rather than being of equal magnitude (which makes no sense

to enter into a JV other than vested interests) can develop and be nurtured when the companies

come together and develop competency.

The ideal exception to this is the “Emerging India” a term we shall identify and describe post

liberalization era, this is when the erstwhile patriarchal systems gave way to a new meritocratic

and professional corporate image of India, a testimony to this that over 70 countries have

entered into a JV with Indian Companies, the entrepreneurial spirit, has flowed into the

“intraprenureal” sprit in Indian companies where in Open cultures young professionals are

allowed to try and do things with proper power and authority.

India however has an edge over the world, it is known for its cost competitiveness owing to thecheaper availability of talented manpower, we have deduced this from Panini’s literature where

he has gauged the high potential in Indian corporate world and enforced the faith in the new

emergent culture, this core competency is however developed by the technical prowess which

currently is underdeveloped in India, but since foreign companies which are ready to partner

with Indian firms after suitable bedfellow considerations, this shortfall can be addressed after

they enter into a JV, thus resulting in a win-win situation.

We will also however focus on another aspect of Indian Companies, sometimes it is a case ofenter into alliances or perish, for example in the Indian Automotive Sector, most companies

today have acquired companies abroad to gain technical competence otherwise not available in

India itself. But many companies have entered into JV’s, therefore those companies which are

not in any kind of strategic alliance to gain core competencies to survive in the Indian Industry

will either be obliterated, moreover Indian companies must adapt and be open to the foreign

cultures rather than take a conservative and power oriented or paternalistic way of functioning.

Because although even most foreign companies don’t consider (as yet) the cultural lens before

entering into the JV, our literature review places ample evidence along with proposition 1statements that that culture incompatibility results in a failure and that culture outcomes can be

predicted, so as per Roger Harrisons model. Paternalistic Indian companies and Bureaucratic

Indian companies will be at a severe disadvantage and handicap if they do not open up to the

open culture system. An Ideal retort to the statement made by Park and Russo that Integrative

JV’s are more likely to fail than Sequential JV’s is the case of the high success rate for Indian



Bhat, Akshay 18

prefatory and likely outcome of the JV between two companies entering into a pact, the purpose

of this literature survey also aims in giving academicians a correlation between Roger Harrisons

Model and the Acculturation Model, also a headway has been given for aspiring researchers to

look at the Indian Subcontinent from a different lens as compared to the European nations, but

in India too we find the transformation from an earlier patriarchal system giving way to a newbreed of professionally run enterprises, this however has yet to be studied, this paper tries to do

just that by establishing a starting point of culture studies in the Indian Subcontinent from a JV

perspective.

The approach to address this issue of culture problems giving rise to JV dissolution is of prime

importance from the Indian context in which the traditional European approach to culture in

organizations will not stand perfectly true, it has to be viewed from an Indian context which we

have to say very few attempts have been made, again, this work is of a lot of relevance,

because India is scheduled to enter into collaborative pacts with a lot of other companies fromother nations and culture is a subtle force which we feel can make the organizations entering

into a JV reach new heights and if overlooked without a scrupulous scan also be an Achilles

heel and a cause for dissolution.

References:

Boyer, Kenneth K, Khazanchi, Shalini: Lewis M.W. Innovation Supportive Culture – The Importance of Organizational Values on Process Innovation, Journal of Operations Management Volume 25, Issue 4, June 2007, Pages 871 – 884.

Park, Seng Ho: Ungson G.R. The Effect of National Culture, Organizational Complementarity, andEconomic Motivation on Joint Venture Dissolution The Academy of Management Journal , Vol. 40, No.2, Special Research Forum on Alliances and Networks (Apr., 1997), pp. 279-307

Cartwright Susan, Cooper C.L. The Role of Culture Compatibility in Successful Organizational Marriage.The Academy of Management Executive (1993-2005) , Vol. 7, No. 2 (May, 1993), pp. 57-70.

National and Organizational Culture Differences and International Joint Venture PerformanceVijay Pothukuchi, Fariborz Damanpour, Jaepil Choi, Chao C. Chen and Seung Ho Park

Journal of International Business Studies , Vol. 33, No. 2 (2nd Qtr. 2002), pp. 243-265

Reur & Shenkar: Handbook of Strategic Alliances. Pp 255-270, Sage Publications.The Oxford Handbook of Inter-Organizational Relations.

Gulati, R., Lavie, D. and Singh, H. (2009), The nature of partnering experience and the gains fromalliances. Strat. Mgmt. J., 30: 1213 – 1233. doi: 10.1002/smj.786.

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