Notes

The Case of Thai JV With Japanese Partner in Construction Business
Literature Review

Business in the 21st century is increasingly conducted with shifting borders. International partnerships will become standard practice as the product life cycles shorten and immediate distribution become imperative. As business is increasing its globalization, alliances among multinational firms have become more popular. Cooperation between international firms can take many forms such as, cross-licensing of proprietary technology, sharing of production facilities, co-funding of research projects, and marketing of every other's products using existing distribution networks (Griffin and Pustay, 2005). Such forms of cooperation are known as strategic alliances, business arrangements whereby two or more firms elect to cooperate for his or her mutual benefit. A jv is a specific and much more formal kind of strategic alliance.

2.1 Defining International JV (IJV)

An international joint venture (IJV) is really a special kind of strategic alliance where two or more companies from different countries join together to create a new business entity that is legally separate and distinct from its parents. Joint ventures are normally established as corporations and are owned by the founding parents in whatever proportions they negotiate. Although unequal ownership is common, many are owned equally by the founding firms (Berger, 1999).

Here is also a definition adapted from Shenkar and Zeira (1987):

1 this is a separate legal organisational entity, and belongs entirely to neither/none of its parent;
2 it really is jointly controlled by its parent;
3 these parents are legally independent of each other;
4 the headquarters of at least one parent is located outside the country where the IJV operates.

As stated some IJVs are formed on an equity basis, more flexible arrangements may be determined by contract cooperation without relating to the legal commitments of equity. Some IJVs may have more than two parents. Generally, the more parents the greater the administrative complexities and the higher the issue of managing the project. Sometimes, both (or all) parents are located beyond your IJV country. For instance, Coca Cola (Vietnam) was started being an IJV between Coca Cola (USA) and a Singaporean bottler; originally it didn't employ any Vietnamese managers, consequently the company needed to deal with cultural difference (Beamish, 1985).

With regards to the construction industry, joint venture has been seen as a tool for improving the performance of the construction process and emphasizes just how it helps to generate synergy and maximize the effectiveness of each participant's resources (Barlow et al., 1997).

The Construction Industry Institute defines joint ventures as a long-term commitment between two or more organisations for the purpose of achieving specific business objectives by maximizing the effectiveness of each participant's resources. This involves changing traditional relationships to a shared culture without regard to organisational boundaries. The relationship is situated upon trust, dedication to common goals, and a knowledge of each other's individual expectations and values (Barlow et al. 1997). Up to now, jv is understood as a couple of collaborative processes, which emphasizes the importance of common goals. The bottom of joint venture is really a high level of interorganisational trust and the current presence of mutually beneficial goals. Jv means a management process that helps the strategic likely to enhance the efficiency of the enterprises, and forms a team with common objectives (Barlow et al. 1997). Participants of a project can improve performance with regards to cost, time, quality, build ability, fitness-to-purpose, and a complete of selection of other criteria, should they adopt more collaborative means of working (Bresnen and Marshall 2000). Barlow et al. (1997) mentions six successful factors of joint venture: building trust, teambuilding, the necessity for top level level commitment, the significance of people, the strategic movement of key personnel, and the necessity for open and flexible communications. Exactly the same authors quote as common benefits in a jv relation: reduced costs, shortened delivery time, improvement in construction quality, better working atmosphere, and organisational learning. Jv classifications focus on the duration of cooperation between partners. This dissertation will undoubtedly be used as an incident study to explore the extent and native of these benefits in practice.

Two main forms of joint venture are located in literature: project joint venture and strategic joint venture or long-term joint venture. Project joint venture is really a cooperative relationship between organisations for the duration of a particular project (Barlow et al. 1997). By the end of the project, the partnership is terminated and another joint venture may commence on another project (Kumaraswamy and Matthews 2000). Welling and Kamann (2001) state that if these firms do not meet again in another project, the learning effect reached on the particular project will be eliminated. Strategic joint venture is really a relationship with a high degree of cooperation between partners (Barlow et al. 1997), which occurs when two or more firms use joint venture on an extended term basis to undertake multiple construction project, or some continuing activity (Kumaraswamy and Matthews 2000). In this sort of joint venture, the learning achieved in a specific project is more prone to be used in future projects. In the context of a strategic joint venture, it becomes a management philosophy that is likely to work continuously for every and every project and there are more expectations from associates than for a project jv (Cheng and Li 2001). The type of TNC JV is the strategic jv where Thai and Japanese Partner are concentrating on the future goal.

2.2 Seeing Joint Ventures as a Foreign Market Entry and Development Strategy

Joint ventures are occasionally viewed as a second (as well as third) most suitable choice for supplying a foreign market-being used only when government regulations (e.g. ownership and export controls, restrictions on royalty payments, etc.) prevent the establishment of wholly owned subsidiaries, exports, or licensing. Indeed, there are major problems that arise in the planning, negotiation, and management of international joint ventures. Despite such difficulties, it really is widely recognised in the literature that there are important strategic and competitive advantages that may be derived from successful joint venture agreements, and such collaboration can be a first option in certain circumstances (Kenichi Ohmae, 1985). Connolly (1984), for instance, argued that the assets of developed-country multinational enterprises (capital, foreign exchange, technology, management, and marketing skills, etc.) and developing-country firms (lower costs, greater knowledge of local markets, etc.) are complementary, and that the combination of these assets in a joint venture results in mutual benefits. This is often observed in the case of TNC. Similarly, Contractor (1984) argued that the increased loss of control and the sharing of profits inherent in equity joint ventures is a lot more than compensated for by the expertise and capital contribution of the local partner; contacts with government officials; faster entry into the market; and risk reduction. Harrigan (1984, 1985) argued that joint ventures should not be seen as a hiding place or a sign of weakness. Rather, if organized properly, joint ventures would be a source of competitive advantage, a way of defending existing strategic positions against forces too strong for one firm to withstand itself or as a way of implementing changes in strategic postures (e.g. diversification access to technology). Joint ventures allow each partner to concentrate their resources in regions of expertise, while enabling diversification into attractive but unfamiliar business areas. Overall, Harrigan (1984, 1985) concludes that joint ventures are important strategic weapon in responding to the challenges of global competition.

2.3 Known reasons for forming the IJV

The partners (Thai and Japanese) may have shared interests in forming an IJV which give both opportunities to

5 create greater market power by combining resources;(Bell, 1996)
6 reduce risk by sharing costs (costs of investment and production are shared);
7 reap economies of scale;
8 cooperate and avoid competition , which can incur greater costs than those incurred by agreeing to the IJV (the IJV can be an alliance that restricts your own convenience of independent action, but additionally restricts that of your partner); (Contractor & Lorange, 1988).

Generally, though, most IJVs offer parents different opportunities which arise from their different environments. A project might offer the foreign parent access to a local market, and the local parent access to the international market. In accordance with (thailandoutlook.com), in 1997 two securities companies, the Premier Band of Thailand and SBC Warburg, formed a joint venture designed to provide Warburg with local expertise and Premier with international access.

Furthermore, the foreign parent must meet the host government's requirements for conducting business in the united kingdom (in cases like this the Thai Government). For example, a foreign company is permitted to operate in the united kingdom if ownership is distributed to an area company. The IJV offers the foreign parent opportunities to understand about local marketing conditions and to gain access to local resources, including production facilities, labour, and materials. For the local parent they are opportunities to create upstream and downstream industries. For instance, the development of an IJV pulp mill encourages local entrepreneurs to improve logging facilities also to spend money on paper manufacture. The local government benefits by opportunities to encourage foreign investment. Also, the foreign parent could be permitted to take only minority ownership, and must fulfil conditions regarding local employment, technology transfer, purchase of local materials, etc (Chowdhury, 1992).

2.4 Factors influencing IJV success and failure

The more that the business depends upon the strategic alliance to experience its strategic goal, the more it invests in the success of the alliance. Regarding TNCJV this implies investing to find the ideal partner. Finding the ideal partner takes time and effort, and the higher the significance that the firm gives to the selection process, the greater the chances of success (Geringer 1991).

Hung's (1992) study of Canadian companies operating in South-East Asia found that "probably the most often mentioned difficulty would be to get the best partner company, one which has compatible objectives and is trustworthy". Therefore, trust is probably the most important elements of forming the IJV. Trust factors then will undoubtedly be reviewed:

2.4.1 Trust between the parents

The project is more prone to succeed when each parent trusts that the other is genuinely committed to the project and will do its far better abide by all agreements between them (Demirbag & Mirza, 2000).

When more partners trust one another, the easier they think it is to attain agreement on internal arrangements:

1 applying the same strategic priorities to planning;
2 management style, and systems;
3 systems for communicating between your parents, the IJV, and parents; within the IJV; sufficient reason for the environment
4 factors connected with business interests, goals, impact of size, timescale
5 assessments of IJV success and failure: project evaluation, both ongoing and upon termination.

(Demirbag & Mirza, 2000)

2.4.2 Mistrust between parents, and the environment

Mistrust arises from

13 inadequate planning;
14 communication problems between parents (Thai and Japanese in cases like this)
15 wide differences in the national and organisational cultures of the parents;
16 one parent changing its attitude to the project in response to its own internal changes - e.g., a fresh strategy, a new CEO;
17 one parent changing its attitude to the project in response to changes in its business environment.

To take the ultimate point: both parents operate within their own volatile business environment. Their local markets and competition differ. They are at the mercy of different local political, social, and economic pressures. These environmental differences make any alliance inherently unstable (Geringer, 1988).

In accordance with Mikio Kunisawa Representative Director of Nishimatsu Construction (HQ in Japan), TNC had a complete order book including much work load and the chance of many new projects during year 2005-2006 period. However, the problem at year-end is somewhat different from his expectation, particularly for Nishimatsu's Bangkok Office, and TNC now faces challenging to maintain the business enterprise levels of the prior years (2006). The primary factor affecting business confidence is the continuing general political instability in Thailand, including an inconclusive general election and the resulting postponement of government decisions regarding infrastructure and development projects (thailandoutlook.com). In the light of this uncertain situation, the forecast indicator for economic growth in Thailand has been revised downward. An additional effect is a downturn in business confidence within the private sector, reducing planned investments in the industrial and property sectors (thainishimatsu.com). This example could then establish uncertainty between your parent company and the environment they face.

These factors of environmental uncertainty might be the reason behind focusing only on short-term alliances with highly specific goals. The partners might use a short limited alliance to be able to test the options for a greater commitment also to build trust (Harrigan, 1985). This also has implications for communication. Each partner must communicate information about its own environment and to develop knowledge of the other's.

2.4.3 Trust within the project

A project succeeds when project staff trusts one another so when persons posted from both parents develop a synergetic relationship. Before project operations start, a shared project culture is fostered by mixing staff from the parents in groups, where they work together on project planning. They exchange non-critical technological and business data (Harrigan, 1985).

Too little trust arises when

18 staff join the project ignorant of the requirements and interests of their colleagues from another parent;
19 local staff feel threatened by a stronger foreign parent;
20 conflict arise from human resource and technology transfer policies (one parent cannot supply the skills to which it really is committed);
21 cultural differences are exploited.
2.4.4 Trust between the project staff and their parent

A project succeeds when staff posted to it feels confident of the support of these headquarters. Mistrust arises when promised support does not materialize, or staff feel that their long-term career prospects with the business are in jeopardy. A project can be undermined when top management does not communicate its goal effectively within the organisation. Subordinate levels perceive it as a drain on their resources, and present it a minimum of attention (Kachara & Hebert, 1999).

2.4.5 Similar business interests
The potential partners will work together effectively if they have related interests. The parents of successful IJVs have similar interests and participate in similar or complementary sectors. When both contribute and learn from the other, fruitful cooperation can be done. Companies in exactly the same industry form alliances when they hope to benefit from discrepancies in technology, systems, and markets (Kogut, 1988). By 1993, joint ventures parented by the Swiss food firm, Nestle, included alliances with Coca Cola (canned coffee and tea drinks), General mills (cereals), and two companies in the people's Republic of China (a coffee and creamer plant, an infant formula and milk powder plant).

2.4.6 Compatibility in size
Incompatibility in the size of the parents is essential when one uses its greater resources to dominate the project in its interests alone. However, the development of business by Internet and other electronic media means the business can expand (and contract) in a very short time, and the size of staffing complements and physical resources is not any longer a precise guide to a firm's financial and knowledge power (Kachra & Hebert, 1999).

The study of a foreign direct investment in Japan discovered that the attitude taken by the Japanese bureaucracy was influenced by such factors as the investor's look after its relationship with the government, the profitability of the IJV, the foreign parent's commitment, timing and location, and technology transfer issues. However, "the size of the investor will not seem to matter much" (Thawley, 1996).

2.4.7 Compatibility in timescale
The parents have to share a timescale. Guess that Parents A and B are both prepared to spend money on five years' development costs. The project is defined fair. But contradictions arise when Parent A aims at reinvesting profits made through the initial period whereas Parent B wants an instant return from its investments (Li, 1995).

2.5 Culture influencing IJV success and failure
2.5.1 Cultural dimensions by Hofstede

Cultural distance between partners and its own effect on IJV performance has up to now been probably the most commonly reviewed variable. The distance has usually been expressed multi-dimensionally (based on Hofsted� (1980) four cultural dimensions and an index produced by Kogut and Singh (1988)). Cultural similarity decreases problems caused by cultural issues (e.g. different norms of behaviour and productivity, measurement and goals linked to performance) and really should facilitate trust and cooperation between partners. Barkema and Vermeulen (1997) tried to analyse in more detail the impact of culture on IJV performance. Using the five different cultural dimensions by Hofstede - power distance, uncertainty avoidance, individualism, masculinity, and long term orientation - the authors expected that there will be differences in the impact of varied dimensions. Differences in uncertainty avoidance are difficult to cope with since they imply differences in how people perceive opportunities and threats within their environment and how they act upon them (Schneider & Meyer, 1991). In high uncertainty avoidance countries organisations have a tendency to respond to uncertainty by building up something of high formalization and hierarchy. In low uncertainty avoidance countries people are more attracted to flexible, ad hoc structures that leave more room for improvisation and negotiation. Differences in uncertainty avoidance lead to differences in how partners perceive and react to events in the surroundings of the IJV, that will likely breed disagreement and disputes between the partners, and have a detrimental effect on the IJVs performance. Power distance and individualism directly bear on issues of internal integration and influence relationships with personnel, like the choice of control forms, reward systems. Management of personnel is usually among the first activities to be left to the local partner. There is also evidence that MNCs usually do not transfer cultural values linked to power distance and individualism to their foreign subsidiaries (Soeters & Schreuder, 1988). Thus tensions between your partners with differences along these dimensions could be avoided. Shenkar and Zeira (1992) suggest that having partners from both "feminine" and "masculine" cultures could even benefit the IJV. The aggressive attitude of one partner and the partnership orientation of the other may complement one another rather than collide. The aforementioned discussion suggests that differences in uncertainty avoidance would be more important than the other three dimensions. The empirical results by Barkema and Vermeulen (1997) supported the expectations: uncertainty avoidance and long-term orientation had greater differential negative impact on IJV survival than masculinity, as the two other dimensions (individualism and power distance) had no impact. What concerns Additional info is said that potential Asian cultures have rather similar cultural profile. This profile includes rather few layers of decision-making, more risk taking, greater group emphasis, and higher concern for relationships (Swierczek & Hirsch, 1994). This can be applied to TNC where Thai and Japanese culture share some similarities.

One culture can influence how willing one is to trust a possible joint venture partner. When it comes to culture, the Japanese are generally somewhat introverted in their ways. They generally are not receptive to outsiders. When conducting business with Japanese, it is very important note that relationships and loyalty to the group is crucial for success.

(http://www.geert-hofstede.com/hofstede_japan.shtml)

In accordance with Hofsted Cultural Dimension Scores, the score of Japan is dramatically not the same as other PARTS OF ASIA. Masculinity in Japan is the highest characteristic. The lowest ranking factor is Individualism, which coincides making use of their high ranking in Uncertainty Avoidance. Japan is really a more collectivist culture that avoids risks and shows little value for personal freedom.

(http://www.geert-hofstede.com/hofstede_thailand.shtml)

On the other hand, Thailand's lowest Dimension is Individualism (IDV). A minimal score, as Thailand has, indicates the society is Collectivist as compared with Individualist which this score is even lower than Japanese. It can be said that this is manifest in a detailed long-term commitment to the member 'group', is that a family, extended family, or extended relationships. Furthermore, the primary different category compared to Japanese Dimension is Masculinity which ranks the cheapest among the Asian Countries. This lower level is indicative of a society with less assertiveness and competitiveness, when compared with one where these values are considered more important and significant. This example also reinforces more traditional male and female roles within the populace.

2.5.2 Compatibility between national cultures
Ones culture also influences ones perception of environmentally friendly factors discussed above; whether your business interests are similar (or incompatible), whether your targets are complementary, whether differences in proportions are essential, what timescale should apply. Theoretically, partners will agree on these points when cultures are compatible. That is, joint ventures formed by parents of similar cultures stands a larger chance of succeeding than those based on between dissimilar cultures (Wille, 1988).

2.5.3 Different organisational cultures
If the organisational cultures of the two parents vary widely, a successful alliance is probably not possible. However, this is not always the case. In the problem of TNC, the organisational culture of parent could be advantagous because the understanding of National Culture also affects the performance.

When talks made to lead to strategic alliance between Mitsubishi of Japan and Daimler-Benz of Germany broke down, the next report was made:

"Analysts say the match has been strained right from the start as the companies have fundamentally different structures. Daimler-Benz, a much smaller company than Mitsubishi, has traditionally had a close knit management structure that has tended to create out clear strategic goals and forge ahead. Mitsubishi, an amorphous conglomerate of several large companies, has moved much more cautiously with internal factions often disagreeing over broader policy." (Yamawaki, 1995).

The companies were unable to overcome differences within their strategies, structures, and organisational cultures.

Staff posted to the project from both parents is more likely to work very well together when their organisational cultures are similar. This does not mean that they should be identical - an impossible condition. Rather, there has to be a sense of comfort about how the other does the business, a willingness to work together and learn, and needs for shared solutions (Fedor & Werther, 1997).

2.5.4 The way the IJV affects the parent organisational cultures
Parenting an IJV project can influence the culture of the parent headquarters by creating new spirit of "internationalism." This is ADVANTAGOUS when headquarters staff benefit from an influx of new ideas and technologies, and develop new understanding of the opportunities offered I the surroundings.

It is DISADVANTAGOUS when the outflow of staff to the IJV (and inflow of replacements) impairs internal cohesion. A confident culture is weakened when staff feels pressured by responsibilities that they have no training and experience. Supporters of the project are isolated. Planning and operating the IJV influences the organisational culture of the parent headquarters. So that you can respond to problems and opportunities due to parenting the project, headquarters streamlines and reorganizes its structures (Siddall et al., 1992).

2.6 Motivational Perspectives between Thai and Japanese
One's motives are major determinants of your respective behaviour. If the business can understand the employee's motives, they can influence their employee's behaviour. To motivate others is among the most significant management tasks. It comprises the abilities to comprehend what drives people, to communicate, to involve, to challenge, to encourage, to set an example, to develop and coach, to obtain feedback, and to give a just reward. According to (Find Ref), "Motivation is approximately cultivating your human capital. The challenge lies not it the task itself, but in you, the person who creates and manages the work environment." However, to motivate people in various culture may be difficult if the level of motivation is not the same. Ref describes how different culture might be perceived differently. Scandinavian cultures (Sweden, Norway, Finland, and Denmark) place a higher value on standard of living and social needs. European and Anglo-American cultures place a high value on productivity, efficiency, and individual self-actualisation. Chinese culture values collectivism and community activity higher than individualism (Same Ref).

According to Maslow's hierarchy of needs, he theorised that people have successive layers of needs, and that as each lower layer is satisfied, then the person moves on to another layer up. The following diagram will explain the way the model works:

(Maslow's hierarchy of needs model from Maslow, 1943)

The lowest layer is that of physiological needs. It's the have to eat, sleep, stay warm, use the bathroom, etc. The next layer is safety (the need to have physical and psychological security, such as for example wanting the presence of law and keeping a job). The 3rd layer is that of love and belonging (being the necessity to be part of a family group, group, or gang). Some would say that third layer is very much a Japanese domain, where owned by a group seems to take priority over the achievement of higher layers. According to (Japanese Ref), he raises the question that "Just how many times have you seen very capable people like Japanese deny themselves a fuller career because of their desire to stay with some smaller company on the basis that it's their 'family?'" The Japanese always put the very best priority to their company. The fourth layer is that of self-confidence and status. This is where high-achievers dwell, and are able to distinguish themselves commercially and professionally. The fifth layer is "Actualization." In accordance with Wikipedia.com, it gives the following description (extract): "Self actualized people embrace the facts and realities of the world instead of denying or avoiding them. They are spontaneous in their ideas and actions. They are creative. They are interested in solving problems, which often includes the problems of others."

The interesting point to make here is whether Thai and Japanese have exactly the same level in Maslow's hierarchy of needs. At TNC, different degree of needs might bring the conflict in interactive situations, for instance, between Japanese employer and Thai employee, the model might need to be adopted in its applications among differing cultures. Despite the fact that the culture of Thailand and Japan might be similar, it generally does not mean that they would have the same desire or expectation.

Based on the literature review, this is of IJV, and reasons for forming the JV have already been illustrated. Factors including cultural differences between Thai and Japanese, and different motivational perspectives were explained. However, it is crucial and vital to discover how these factors affect TNC employees predicated on their perception. In Chapter 4, findings and analysis from the interview will be examined.

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Beamish, P. W. (1988). Multinational joint ventures in developing countries. New York: Routledge.

Beamish, P. W. & A. C. Inkpen (1995). Keeping international joint ventures stable and profitable. Long Range Planning, Vol 28:3,

Barkema, H. & F. Vermeulen (1997). What differences in the cultural backgrounds of partners are detrimental for international joint ventures? Journal of International Business Studies 28:4, 845-864.

Beamish, P. W. & J. P. Killing (1997c) (editors). Cooperative strategies: Asia Pacific perspectives. San Francisco: New Lexington Press.

Berger, S. (1999) International Joint Ventures. Boston: Pearson Education.
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