Creating a Joint Venture

Creating a Joint Venture

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When Cross Border Mergers or Acquisitions happen the participating organizations need to understand the issue of differences in national cultural issues very well in order to set up a successful Joint Venture (JV). Each country has a different national culture and this needs to be recognized and addressed because it will ultimately impact upon the work culture of the fusion organization they are newly going to form.
Geert Hofstede developed a model which seeks to understand how values in the work place are influenced by culture. He started this study by looking at IBM operations between 1967 and 1973. Data was culled out from 50 different countries which were then extrapolated to 74 nations (the original 50 plus an additional 24). Initially Hofstede zeroed in upon four factors -
1. Power Distance (PD),
2. Uncertainty Avoidance (UA),
3. Individualism (IND) and
4. Masculinity (M).
Later on he added a fifth dimension as well. This fifth dimension arose out of his interactions with Chinese workers who as a general rule gave great weightage to their Confucian beliefs. Confucianism as such lays stress upon Long Term Orientation. Hofstede found it worthwhile to take up this fifth dimension as well since he found that this dimension is relevant in the workplace in both Confucian and non Confucian societies.
Hofstede's view is that in strategic terms before, while and after forming the resultant organization the management needs to examine, introspect and understand that both the nations would have different scores on these five basic values in the work place. The resultant organization is the result of two different national cultures. This would help in creating and maintaining a well fused organization. We can now examine the Hofstede scores of UK and India as a means to understand likely issues faced by an organization like Vodafone where UK and India are involved.
The Hofstede Global Average on each of the five factors can be basis of reference and against this we can compare India and the UK. The Global Average is a weighted average drawn from developing and developed economies. Bearing this in mind we can develop perspective on Vodafone wanting to set up a corporate entity based in India. The Average scores are:-
Global Average India United Kingdom
PDI – 56.5 77 40
IDV- 40 44 85
MAS- 51 56 61
UAI- 65 40 30
LTO- 48 61 20

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From management's point of view understanding how the country compares with the world is only an insight and of theoretical importance whereas understanding how both countries compare with each other is of greater practical value in developing strategy.

Power Distance Index (PDI):- India's score is 77 versus (Global 56.5 and UK 40) is extremely good news for Vodafone UK wanting to set up operations in India. India's history has had more of Socialism (distribution of wealth) rather than Capitalism (creation of wealth) and so Indians have not minded so far disparity in power and wealth. In terms of implications the Vodafone India office can very well have wide wage differentials between top, middle and lower management. Cabins can be of varying grandeur levels along with perquisites and cars of varying levels of grandeur. All employees need not necessarily have to wear ties or wear the same uniform. Calling everyone by their first name would not work in this corporate culture. However these Hofstede would be more acceptable to Indian nationals born, brought up and educated in India and not necessarily to Indians who have been born and/or brought up and/or educated abroad. In other words Naturalised Indians and Non Residents would behave differently in terms of values and beliefs due to their differing experience.

Individualism (IDV):- India's score is 44 versus (Global 40 and UK 85). The score means that India is more group oriented and UK is more individualistic. This cannot be generalized as being good or bad in every case. In the Vodafone situation we feel this is good and bad news for different sectors of Vodafone business. Firstly it is bad if manufacturing would happen in India. No doubt Indians are known for group orientation and not for individualism. Theoretically this should give us an advantage in labour intensive industries. However experience shows that despite team power which group outlook can provide we are known for poor productivity and not so much for cost saving compared to China and other emerging Asian countries. Secondly our IDV scores do not matter if we are looking at a sales team made of Indians. Naturally the Vodafone sales team in India should have Indian salesmen since they understand the market better. Indians rather than foreign nationals would also mean lower HR costs. And in the present situation the telecom market is buoyant and demand in any case exceeds supply. Not much of concept selling needs to be done. An Indian sales team would work fine. Thirdly if it is R&D probably foreign nationals would serve better with their individualism and drive. With low IDV score an Indian based in India while one may be very intelligent may not show much drive or willingness to rock the boat since he respects tradition and traditional values too much.

Masculinity (MAS):- India's score is 56 versus (Global 51 and UK 61). Male chauvinism is lower in India compared to UK. In overall terms this is good news for recruiters in Vodafone but it needs to be taken with reference to the social context in India. However certain social issues like sex ratio and gender crimes cannot be ignored. It is safer to recruit women in the corporate office for corporate functions rather than recruiting women for regional functions at regional and area offices. There are a couple of reasons for this. In India important telecon markets are located in North Indian states and Union Territories. These markets are huge in terms of consumption but equally well known for high crime rates (Delhi) or gender crimes caused by an inverted sex ratio where males outnumber females (Punjab). The risks suffered by women have also been brought out by tragic instances faced in bpo's.

Uncertainty Avoidance Index (UAI):- India's score is 40 versus (Global 65 and UK 30).
This is bad news for Vodafone. A society which avoids ambiguity tends to have strict laws and rules, safety and security measures and in terms of philosophy and religion pursues belief in Absolute Truth and their people tend to be more emotional and be more emotionally expressive. Indians obviously do not tolerate uncertainty as much as the UK and possibly Indians are more litigative. Perhaps we still have a sensing of having been ruled and colonized rather much and still carry some negative residue. UK being a nation of immigrants and accustomed to dealing with multiracials in their workspace tend to have a lower UAI score than India. India despite a huge multicultural and multilingual population is still having vast economic disparity between social demographic groups, between castes and between states to an extent that it has generated reservation and parochialism. Managing this therefore is going to be the most difficult amongst the five different Hofstede factors. The implication is that Indians would seek more written assurances rather than verbal ones. The good news is that the UK as a nation has historically been known to be very good in documentation. If they could therefore carry forward the good work in terms of good workspace practices defined clearly in writing with facts and figures and display transparency at work this would augur well.)

Long-Term Orientation (LTO):- India's score is 61 versus (Global 48 and UK 20).Amongst the five Hofstede factors this one is the most positive one. India scores overwhelmingly well in terms of Long Term Orientation. An organization with long term orientation lays stress on thrift and perseverance. This forms an important foundation for the JV. Going deeper this means good things operationally. Whenever a JV is formed one important sales strategy needs answering - Would the new business be routed through the existing channel partners or through new channel partners? A low score LTO poses a business risk to a JV because a JV partner would feel conventionally obligated to route the new business also through existing channel partners. A high score LTO is unlikely to pose such business risk.
Hofstede's culture work strategy is very influential and successful as it is being used worldwide. But in his theory Hofstede assumes that the entire country has a common dimension scorecard. In larger countries the dimensions may differ with region, religion and other characteristics. In India many religions coexist and the temperament of people from different religions can diverge considerably. Some of the dimensions are overlapping. According to some critics, power distance is a fraction of individualism. The more individualistic the environment, the more uneven is the power. The dimension uncertainty avoidance was measures by Hofstede using technology, law and religion as the basis. Law and religion are not suitable to determine economic performance of a nation and individual businesses. Another aspect which makes this strategy weak is the method used to get the statistics of each country. Sampling method always leaves a certain degree of doubt and it was done with employees from IBM across all the countries leading to biased results. Analyzing the IBM subsidiary in these countries makes this theory weak as IBM has its own distinctive work culture which may not apply to all organizations across the global. The culture of one subsidiary cannot define the culture of the whole nation. This statistics collected is old and outdated. Another flaw in the theory is that it favoritism towards western values is seen as it was developed by westerners. These values may not be appropriate to analyse the cultural environment of some Asian countries. When tested in China, Hofstede's three dimensions where appropriate but the fourth one of uncertainty avoidance was not relevant. This shows that Hofstede's dimensions are not universal in nature. Despite of these drawbacks, hofstede's theory is accepted worldwide.
Summing up, when the five Hofstede factors are taken jointly for Vodafone's plans in India it augurs well for the Joint Venture. It is equally meaningful to note that this would not necessarily have been the case if the JV Company was located in the UK. Quite obviously while applying Hofstede A=B does not necessarily mean B=A.


APPENDIX 1





www.geert-hofstede.com

BIBLIOGRAPHY

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