The popularity of joint ventures increased significantly in the last two decades. Multinational corporations form joint ventures with foreign companies to increase their global market share. Joint ventures often face serious challenges due to cultural differences in various regions.
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Organisations with significantly different cultures usually fail to cooperate due to misunderstandings and disagreements. This paper will analyse the challenges facing a joint venture between an Australian and a Peruvian company. The causes of the challenges or problems will also be discussed.
The analysis will focus on areas such as human resource planning, recruitment, reward, retention, culture, and training. An alternative recruitment system will be proposed to enable the company to hire the right people for international assignments.
Moreover, recommendations that are geared towards solving short-term and long-term problems in the company will be made.
One of the problems in the company was its inability to recruit the right candidate to fill a vacancy in Peru. This problem was mainly caused by the company’s ineffective selection procedure.
An effective international selection procedure should focus on predicting the ability of the incumbent to excel in the host country environment (Caligiuri, Tarique & Jacobs 2009, pp. 251-262). However, the company’s selection process focused on the ability of the candidate to perform specific tasks.
For example, Ed was selected for the international assignment because he was a brilliant engineer with management experience. Key determinants of success in international assignments such as cross-cultural adjustment, foreign experience, and personality characteristics were not given adequate consideration.
The poor selection procedure could also be attributed to the fact that the company lacked international experience. The company had not completed a project in a foreign country through a joint venture. Therefore, none of its employees had the skills that were required for effective management of joint ventures.
Lack of skills limited the capacity of the HR department to establish a reliable recruitment procedure. This made it difficult for the HR department to find a suitable candidate.
Poor work relationship between managers from Australia and their counterparts from Peru was a major problem because of the cultural differences between the two countries. National cultures often influence organisational culture since they affect the attitudes and perception of employees (Cameron & Quinn 2011, p. 92).
Figure 1 shows the difference between Australia and Peru in terms of Hofstede’s cultural dimensions. Australia has a score of 61 in masculinity, whereas Peru has a score of only 42. This means that Australians prefer heroism, assertiveness, and achievement. For instance, Ed refused to provide technical assistance to Peruvians.
This could be explained in part by the fact that individuals from masculine societies such as Australia believe that everyone should work hard to succeed instead of seeking favours. Peru, on the other hand, is a feminine society. Peruvians prefer cooperation, caring, and modesty.
Thus, they expected to get technical assistance from Australians as had been promised by Quinn.
Figure 1 also shows that Australia has a moderate uncertainty avoidance index of only 51. By contrast, Peru has a high uncertainty avoidance index of 87. The implication of this difference is that Australians tend to exhibit low or moderate anxiety when dealing with uncertain situations (Armstrong 2006, p. 78).
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This perspective is supported by Quinn’s decision to appoint Ed despite the fact that he was not sure of his ability to manage the joint venture. Peruvians demanded a new manager because of their high uncertainty avoidance index. They preferred to work with a person who could cooperate with them effectively to avoid failure.
Ineffective Lines of Communication
Poor communication was also a major problem in the company. One of the factors that led to this problem is that Australia has a low context culture, whereas Peru has a high context culture. Australians prefer straightforward and concise communication.
They use precise words, which must be taken literally to avoid misunderstandings (Kumari 2012, pp. 291-310). For instance, Ed was very explicit in his communication when he said no to the Peruvian’s request for technical assistance.
Peruvians did not expect a no for an answer since their high context culture promotes interpersonal relationships. In Peru, context is more important than words during conversations. This means that Ed should have used body language to show the Peruvians that he was not willing to assist them.
Indirect communication could have helped the company to avoid losing the trust of the Peruvians (Sadler 2003, p. 68).
Australia is characterised by a low power distance index of only 36. Employees in Australia expect to be consulted when their managers are making major decisions (Pearce & Robinson 2009, p. 91). In this respect, the CEO expected Ed to consult him before making major decisions.
However, Ed decided to change the decision of the company to assist the Peruvians without consulting the CEO. In this respect, conflict arose because Ed was not a good communicator.
Poor Expatriate Remuneration Package
The company could not find a volunteer to fill the vacancy in Peru because all its qualified employees believed that the compensation was inadequate. As a result, Ed was chosen despite his weaknesses. Expatriate assignments often present significant challenges to employees and members of their families.
The challenges include high cost of living, adjusting to new cultures, staying away from family members, and difficulty in finding schools for children (Leandra & Swift 2006, pp. 230-243). These challenges can cause a high level of stress among expatriates.
For instance, relocating to a country where the cost of living is very high can cause financial instability among expats. Moreover, expats who are not able to adjust to new cultures can underperform. This is likely to expose them to the risk of losing their jobs.
Employees tend to have high expectations concerning expatriate incentive packages. Most employees believe that expats should enjoy several benefits in addition to a high salary. A generous remuneration package is expected to motivate employees to face the challenges associated with expatriate assignments (Reddy 2005, p. 70).
However, a very high salary increment can significantly increase operating costs, thereby making expatriate assignments unviable. For instance, the CEO had to double the salary paid to Ed in order to get a replacement.
The CEO failed to identify the factors that motivated employees because Australia is associated with high individualism. Australians prefer loosely knit social relationships in which interpersonal connections are limited (Hill & Jones 2012, p. 99).
In this respect, the CEO did not make an effort to know the employees on a personal basis. Employees, on the other hand, were not loyal to the company due to individualism. They were not willing to accept a low salary as a way of showing their loyalty to the company.
Ineffective Human Resource (HR) Planning Strategy
Human resource planning involves linking the HR needs of a company to its strategic plan in a bid to ensure that it has an adequate number of skilled employees. An effective HR planning strategy must be aligned to the overall business plan (Sadler 2003, p. 88).
This ensures availability of the skills that are needed to achieve short term and long-term objectives.
The HR planning strategy used by the company had the following weaknesses. First, the company failed to forecast its human resource needs. Although the company expected to form more joint ventures, it did not identify the countries where the ventures were to be established.
This made it difficult to identify the level of experience and skills that were required to undertake expatriate assignments. Second, the company ignored the importance of succession planning. Given the high turnover rate, the company was likely to face difficulties in finding individuals to replace key leaders (Reddy 2005, p. 112).
Replacing Ed could have been less challenging and costly if several employees had been identified and prepared in time to take foreign assignments.
Third, staff development was not given priority in the HR planning process. The cross-cultural aptitude test indicated that Ed was not capable of leading a multicultural workforce. However, the company did not make any effort to train Ed on various aspects of managing a multicultural workforce.
Moreover, Ed was not mentored before leaving Australia. Mentorship could have allowed Ed to access all the assistance that he needed to adjust to the challenges of his new position in Peru.
The weaknesses mentioned in the foregoing paragraphs could be explained by the fact that the HR planning strategy of the company was not linked to its business plan.
The objective of the company was to expand through joint ventures. However, it did not establish effective staffing policies to guide recruitment of employees who had the desired skills.
A better appointment system could have been devised for the position in Peru to avoid failure. The company should have adopted a systematic appointment system to recruit the right person.
A systematic appointment system involves developing job descriptions and skills inventory, as well as, using structured interviews to recruit employees.
Designing an accurate and comprehensive job description is a fundamental step in the systematic appointment system. Effective job descriptions provide critical information concerning various aspects of a position such as compensation, reporting requirements, and leadership responsibilities.
The importance of job descriptions is that they help applicants to make informed decisions concerning various positions. This means that more employees were likely to express their interest in the vacancy in Peru if the company had provided a clear job description.
As a result, the company “could have identified an employee who was likely to be satisfied and fully utilised in the position” (Reddy 2005, p. 123).
Compiling a comprehensive list of skills that were required for excellent performance was necessary to ensure success. The company was supposed to take into account the following criteria to identify the right candidate. First, the company was supposed to consider technical competence during the selection process.
An expat is not only expected to have technical skills, but also to be able to provide assistance in overseas subsidiaries (Thoo & Kaliannan 2013, pp. 143-158). Although Ed had the required technical skills, he was not willing to share his knowledge and experience with the Peruvians. This led to technical failures in Peru.
Second, personality traits must be considered during recruitment. A successful expat must be able to understand diverse cultures and interact with individuals from different cultural backgrounds.
Therefore, the “attributes of a suitable expat include cultural empathy, adaptability, diplomacy, language ability, positive attitude, emotional stability, and maturity” (Rehg, Gundlach & Grigorian 2012, pp. 215-232). These characteristics allow expats to succeed in host countries by enabling them to overcome culture shock and language barriers.
The company should have used the cross-cultural aptitude tests in conjunction with feedback from third parties concerning cultural competence and past performance records. This could have improved the process of identifying the right candidate.
Cross-cultural aptitude tests are usually not accurate because their measurement criteria are hardly validated. Thus, relying only on the tests can lead to suboptimal decisions in the process of selecting expats.
The company should have used a systematic interview to obtain valuable insights into the competence of potential candidates. A well structured interview should consist of three phases namely, development, discussion, and decision (Kumari 2012, pp. 291-310).
The development phase encompasses all the activities that are performed before the interview. These include stating the purpose of the interview, analysing applicants’ qualifications, training interviewers, and selecting interview questions.
These activities facilitate adequate preparation, which in turn improves the chances of selecting the most qualified candidate. The discussion phase encompasses all the activities that occur during the interview. The interviewer should establish rapport to enable the interviewee to open up and provide the desired information.
Asking relevant and clear questions is also important since it improves the interviewee’s ability to provide relevant information. The decision phase involves evaluating the outcome of the interview. Overall, conducting a systematic interview could have enabled the company to gather adequate information about Ed before selecting him.
This could have helped Quinn to avoid making the wrong choice.
Tackling the Problems
The short-term and long-term problems in the company can be solved by implementing the following strategies. To begin with, recruitment and staffing policies should be linked to the company’s long-term objective of building a multinational culture.
A regiocentric staffing policy should be adopted to build a pool of employees with international experience. The policy involves transferring managers to subsidiaries in foreign countries, but within the same region. For instance, the company should have transferred a person from South America rather than Australia.
The policy will enable employees to learn the cultures of different countries in various regions (Lee & Yu 2008 340-359). It will also give host country nationals the opportunity to influence decisions, thereby averting resistance.
The regiocentric policy also motivates employees to take expatriate assignments because it reduces the challenges associated with adjusting to a new culture. For instance, a Brazilian could have found it easier to adapt to Peruvian culture than an Australian since South American countries have cultural similarities.
The functions and activities of the HR department should also be reviewed to facilitate creation of an effective international culture. The department should adopt recruitment, reward, and retention policies that support the desired culture. Recruitment policies should support employment of individuals with cultural competence.
This will ensure that employees are able to adjust to new cultures effectively. Reward policies should promote retention of individuals with cross-cultural management skills.
Aligning the career paths of employees to the objectives of the company can also help the HR department to improve cross-cultural intelligence (Branine 2005, pp. 459-472).
Cross-cultural intelligence refers to “the ability to switch ethnic or national contexts and quickly learn new patterns of social interaction with appropriate behaviour responses” (Branine 2005, pp. 459-472). The HR department should motivate managers to acquire new skills and behaviours in order to excel in different cultures.
The department should explain the significance of acquiring cross-cultural management skills to inspire managers to learn new cultures.
The company should also focus on supporting and monitoring employees’ work. Staff development initiatives should provide cross-cultural training to all employees (Schein 2010, p. 93). The training will enable employees to understand cultural diversity. Cultural awareness will improve tolerance and harmony in the company.
Employees are likely to tolerate their cultural differences if they understand their diverse cultures. Cross-cultural communication training should also be provided to facilitate effective interaction and socialisation among employees.
The training should focus on improving employees’ knowledge about the official language of the company. Apart from language, employees should understand the communication styles used in various countries. This will prevent misunderstanding and loss of trust.
Several strategies can be used to provide cross-cultural training. To begin with, the company can hire a consultant to provide on-the-job training to employees concerning various aspects of culture. Employees can also be sent to institutions of higher education to learn new languages (Messner 2013, pp. 76-100).
The company should finance the training programmes to motivate employees to participate in them. It should also adopt expatriate assignment as part of its development strategy. All managers should be given a chance to work in various countries for at least three years in order to learn new cultures.
This strategy will improve cultural competence and ensure that the company has a reliable supply of managers who can excel in different cultures.
Mentoring should also be introduced as a strategy for creating a multinational culture. Mentoring allows employees to obtain assistance from their colleagues who are competent in various areas of management (Messner 2013, pp. 76-100).
Thus, it can help managers to overcome short-term challenges such as communication barriers in foreign countries. In this respect, expats should have mentors who can prepare them to adapt to new cultures in a seamless manner. Cultural competence should be part of employee performance monitoring criteria.
The performance evaluation system of the company should assess the ability of employees to acquire cultural intelligence. This will enable managers to identify and address the challenges that are likely to derail the process of creating a multinational culture.
The main problems in the company included ineffective employee selection procedure, lines of communication, and human resource planning strategy. The company also had a poor expatriate remuneration package. Cultural difference is one of the factors that led to failure in the joint venture.
A systematic recruitment method should have been used to fill the vacancy in Peru. The long-term and short-term problems in the company can be addressed by reviewing the roles and functions of the HR department.
The department should focus on creating a multinational culture through its role in staff recruitment, development, and retention. The company should also adopt a regiocentric staffing policy to improve the success of its future joint ventures.
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