Notes

The Case of Thai Joint Venture 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 are becoming more popular. Cooperation between international firms can take many forms such as, cross-licensing of proprietary technology, sharing of production facilities, co-funding of studies, and marketing of each other's products using existing distribution networks (Griffin and Pustay, 2005). Such types of cooperation are known as strategic alliances, business arrangements whereby several firms elect to cooperate because of their mutual benefit. A jv is a specific and much more formal kind of strategic alliance.

2.1 Defining International JV (IJV)

An international jv (IJV) is really a special type of strategic alliance in which two or more companies from different countries join together to make 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 is jointly controlled by its parent;
3 these parents are legally independent of every other;
4 the headquarters of a minumum of one parent is located beyond your country in which the IJV operates.

As stated some IJVs are formed on an equity basis, more flexible arrangements may depend on contract cooperation without involving the legal commitments of equity. Some IJVs could have a lot more than two parents. In check here , the more parents the greater the administrative complexities and the higher the problem of managing the project. Sometimes, both (or all) parents can be found outside the 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, due to this fact the company needed to cope with cultural difference (Beamish, 1985).

In terms of the construction industry, jv has been regarded as a tool for improving the performance of the construction process and emphasizes the way it helps to generate synergy and maximize the potency of each participant's resources (Barlow et al., 1997).

The Construction Industry Institute defines joint ventures as a long-term commitment between several organisations for the intended 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 partnership is based upon trust, dedication to common goals, and an understanding of every other's individual expectations and values (Barlow et al. 1997). Up to now, joint venture is understood as a couple of collaborative processes, which emphasizes the significance of common goals. The bottom of joint venture is a high level of interorganisational trust and the presence of mutually beneficial goals. Jv means a management process that helps the strategic likely to improve the efficiency of the enterprises, and forms a team with common objectives (Barlow et al. 1997). Participants of a project can improve performance in terms of cost, time, quality, build ability, fitness-to-purpose, and a complete of selection of other criteria, if they adopt more collaborative ways 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 importance of individuals, the strategic movement of key personnel, and the necessity for open and flexible communications. 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. Joint venture classifications focus on the duration of cooperation between partners. This dissertation will be used as an incident study to explore the extent and native of the benefits in practice.

Two main forms of joint venture are located in literature: project jv and strategic joint venture or long-term joint venture. Project joint venture is really a cooperative relationship between organisations throughout a particular project (Barlow et al. 1997). By the end of the project, the partnership is terminated and another joint venture may commence on the next project (Kumaraswamy and Matthews 2000). Welling and Kamann (2001) state that if these firms usually do not meet again in another project, the learning effect reached on this project will be eliminated. Strategic jv is a relationship with a higher degree of cooperation between partners (Barlow et al. 1997), which takes place when several firms use joint venture on a long term basis to attempt more than one construction project, or some continuing activity (Kumaraswamy and Matthews 2000). In this sort of joint venture, the training achieved in a specific project is more likely to be utilized 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 you can find more expectations from associates than for a project joint venture (Cheng and Li 2001). The type of TNC JV is the strategic joint venture where Thai and Japanese Partner are focusing on the long term goal.

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

Joint ventures are sometimes viewed as a second (and even third) most suitable choice for supplying a foreign market-being used only once government regulations (e.g. ownership and export controls, restrictions on royalty payments, etc.) avoid the establishment of wholly owned subsidiaries, exports, or licensing. Indeed, there are major problems that arise in the look, negotiation, and management of international joint ventures. Despite such difficulties, it is widely recognised in the literature that there are important strategic and competitive advantages which may be derived from successful jv 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, forex, technology, management, and marketing skills, etc.) and developing-country firms (lower costs, greater knowledge of local markets, etc.) are complementary, and that the mix of these assets in a jv 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 more than compensated for by the expertise and capital contribution of the neighborhood partner; contacts with government officials; faster entry into the market; and risk reduction. Harrigan (1984, 1985) argued that joint ventures shouldn't be seen as a hiding place or perhaps a sign of weakness. Rather, if organized properly, joint ventures will be a way to obtain competitive advantage, a way of defending existing strategic positions against forces too strong for one firm to withstand itself or as a means of implementing changes in strategic postures (e.g. diversification usage of 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 essential strategic weapon in responding to the challenges of global competition.

2.3 Known reasons for forming the IJV

The partners (Thai and Japanese) could 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 prevent competition , which might incur greater costs than those incurred by agreeing to the IJV (the IJV is an alliance that restricts your personal capacity for independent action, but also restricts that of one's partner); (Contractor & Lorange, 1988).

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

Furthermore, the foreign parent needs to meet up with 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 only permitted to operate in the country if ownership is shared with a local company. The IJV supplies the foreign parent opportunities to understand about local marketing conditions and to access local resources, including production facilities, labour, and materials. For the local parent these are opportunities to generate upstream and downstream industries. For instance, the development of an IJV pulp mill encourages local entrepreneurs to increase logging facilities and to invest in 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 company is dependent upon the strategic alliance in order to achieve its strategic goal, the more it invests in the success of the alliance. Regarding TNCJV this means investing to find the ideal partner. Locating the ideal partner takes time and effort, and the greater the importance that the firm gives to the selection process, the higher the probability of success (Geringer 1991).

Hung's (1992) study of Canadian companies operating in South-East Asia discovered that "probably the most often mentioned difficulty would be to get the right partner company, the one that has compatible objectives and is trustworthy". Therefore, trust is among the most important parts of forming the IJV. Trust factors then will 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 can do its best to abide by all agreements between them (Demirbag & Mirza, 2000).

When more partners trust each other, the easier they think it is to reach agreement on internal arrangements:

1 applying exactly the same strategic priorities to planning;
2 management style, and systems;
3 systems for communicating between the parents, the IJV, and parents; within the IJV; sufficient reason for the environment
4 factors associated 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 surroundings

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 fresh CEO;
17 one parent changing its attitude to the project in reaction 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 subject to different local political, social, and economic pressures. These environmental differences make any alliance inherently unstable (Geringer, 1988).

According to Mikio Kunisawa Representative Director of Nishimatsu Construction (HQ in Japan), TNC had a full order book including much work load and the chance of several new projects during year 2005-2006 period. However, the situation at year-end is somewhat different from his expectation, particularly for Nishimatsu's Bangkok Office, and TNC now faces a challenge to maintain the business enterprise levels of the previous 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 the uncertain situation, the forecast indicator for economic growth in Thailand has been revised downward. A further effect is a downturn running a business confidence within the private sector, reducing planned investments in the industrial and real estate sectors (thainishimatsu.com). This example could then establish uncertainty between your parent company and the environment they face.

These factors of environmental uncertainty may be the reason behind focusing only on short-term alliances with highly specific goals. The partners might use a short limited alliance so as to test the options for a larger commitment also to build trust (Harrigan, 1985). This has implications for communication. Each partner must communicate information about its own environment also 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 interact 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 needs and interests of these 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 your project staff and their parent

A project succeeds when staff posted to it feels confident of the support of their headquarters. Mistrust arises when promised support fails to materialize, or staff feel that their long-term career prospects with the business are in jeopardy. A project can be undermined when top management fails to 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 are more likely to work together effectively when 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 another, fruitful cooperation is possible. Companies in the same industry form alliances if they hope to reap the benefits of 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, a child formula and milk powder plant).

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

The research of a foreign direct investment in Japan discovered that the attitude taken by japan bureaucracy was influenced by such factors because the investor's care for its relationship with the federal government, the profitability of the IJV, the foreign parent's commitment, timing and location, and technology transfer issues. However, "how big is the investor will not appear to matter much" (Thawley, 1996).

2.4.7 Compatibility in timescale
The parents have to share a timescale. Suppose that Parents A and B are both ready to invest in 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 a quick 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 impact 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 developed by Kogut and Singh (1988)). Cultural similarity decreases problems due to cultural issues (e.g. different norms of behaviour and productivity, measurement and goals linked to performance) and 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 longterm orientation - the authors expected that there would be differences in the impact of various dimensions. Differences in uncertainty avoidance are difficult to handle because they imply differences in how people perceive opportunities and threats in their environment and how they do something about them (Schneider & Meyer, 1991). In high uncertainty avoidance countries organisations tend to respond to uncertainty by building up something of high formalization and hierarchy. In low uncertainty avoidance countries folks are more drawn 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 respond to events in the environment of the IJV, which will likely breed disagreement and disputes between the partners, and have a negative effect on the IJVs performance. Power distance and individualism directly bear on issues of internal integration and influence relationships with personnel, such as the selection of control forms, reward systems. Management of personnel is normally among the first activities to be left to the neighborhood partner. Addititionally there is 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 the partners with differences along these dimensions may be avoided. Shenkar and Zeira (1992) claim that having partners from both "feminine" and "masculine" cultures may even benefit the IJV. The aggressive attitude of 1 partner and the relationship orientation of another may complement one another rather than collide. The above discussion shows that differences in uncertainty avoidance would be more important compared to 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 effect on IJV survival than masculinity, as the two other dimensions (individualism and power distance) had no impact. What concerns the Asian context it could be 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. In terms of culture, the Japanese are generally somewhat introverted in their ways. They generally are not receptive to outsiders. When conducting business with Japanese, it is important to remember 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 different from other Asian Countries. Masculinity in Japan may be the highest characteristic. The cheapest ranking factor is Individualism, which coincides with 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)

In contrast, Thailand's lowest Dimension is Individualism (IDV). A low score, as Thailand has, indicates the society is Collectivist compared to Individualist which this score is even less than Japanese. It usually is said that this is manifest in a close 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, as compared to one where these values are considered more important and significant. This situation also reinforces more traditional male and female roles within the population.

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 goals are complementary, whether differences in proportions are important, what timescale should apply. In theory, partners are more likely to acknowledge these points when cultures are compatible. That's, joint ventures formed by parents of similar cultures stands a larger potential for succeeding than those based on between dissimilar cultures (Wille, 1988).

2.5.3 Different organisational cultures
If the organisational cultures of both parents vary widely, an effective alliance might not be possible. However, this is simply not always the case. In the situation of TNC, the organisational culture of parent could be advantagous because the understanding of National Culture also affects the performance.

When talks designed 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 from the beginning because the companies have fundamentally different structures. Daimler-Benz, a much smaller company than Mitsubishi, has traditionally had a close knit management structure which has tended to set 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 prone to work very well together when their organisational cultures are similar. This will not mean that they must be identical - an impossible condition. Rather, there must be a feeling of comfort about how the other does the business, a willingness to interact 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." That is ADVANTAGOUS when headquarters staff reap the benefits of an influx of new ideas and technologies, and develop new knowledge of the opportunities offered I the surroundings.

It is DISADVANTAGOUS once the outflow of staff to the IJV (and inflow of replacements) impairs internal cohesion. A positive 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. In order to 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 are able to influence their employee's behaviour. To motivate others is one of the most significant management tasks. It comprises the abilities to comprehend what drives people, to communicate, to involve, to challenge, to encourage, to create an example, to build up and coach, to obtain feedback, and to provide a just reward. In accordance with (Find Ref), "Motivation is about cultivating your human capital. The task lies not it the work itself, but in you, the person who creates and manages the work environment." However, to motivate people in various culture might be difficult if the level of motivation is not the same. Ref describes how different culture may be perceived differently. Scandinavian cultures (Sweden, Norway, Finland, and Denmark) place a high 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 greater than individualism (Same Ref).

In accordance with 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 the next 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 is the have to eat, sleep, stay warm, utilize the bathroom, etc. The second layer is safety (the necessity to have physical and psychological security, such as wanting the current presence of law and keeping a job). The third layer is that of love and belonging (being the need to be part of a family group, group, or gang). Some would say that this third layer is very much indeed a Japanese domain, where owned by a group appears to take priority on the achievement of higher layers. In accordance with (Japanese Ref), he raises the question that "Just how many times have you seen very capable people like Japanese deny themselves a fuller career due to their desire to stick with some smaller company on the foundation that it is their 'family?'" The Japanese always put the most notable priority to their company. The fourth layer is that of self esteem and status. This is where high-achievers dwell, and so are able to distinguish themselves commercially and professionally. The fifth layer is "Actualization." In accordance with Wikipedia.com, it gives the next description (extract): "Self actualized people embrace the reality 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 issues of others."

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

Using the literature review, the definition of IJV, and reasons for forming the JV have already been illustrated. Factors including cultural differences between Thai and Japanese, and various motivational perspectives were explained. However, it is necessary 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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