Construts - My Understanding
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The document provides context and definitions for key concepts in the research being conducted by Akshay S Bhat for his Advanced Research Methods course. It begins by clarifying the assumptions and premises of the research, which examines how power inequity, shared values, knowledge complementarity, and opportunism impact the success or failure of joint ventures in India. It then defines key terms like alliance, collaboration, strategic alliance, and joint venture. It also discusses how to assess the performance and types of joint ventures. The document aims to clearly define the constructs and scope of the research.
Construts - My Understanding
- 1. Submission:Constructs Definition Submitted to: Dr. Munish Thakur Submitted by: Akshay S Bhat Course: Advanced Research Methods ------------------------------------------------------------------------------ Q1> what is the work I am doing all about? Is there any assumption/premise? The topic I have selected for the partial fulfillment of the ARM Course, deals in the Domain of Strategic Alliances. At the onset, I begin by appreciating the need for the work I am doing.“Why am I doing it?” For long Strategy Researchers, Scholars, Practicing Managers and amateurs without any formal understanding of the definition of Strategy have associated strategy to competitive advantage in succinct“getting ahead of the other/s”, that commensurate with Michel Porter’s view. Michel Porter both as a student of MBA and of Ph.D. at Harvard was flummoxed by one question: Why some companies perform better than others?1 Well this led him to combine the best of both worlds of Industrial Economics and the field of Strategy, Strategy -which then was still in its embryonic stages. In due course, also owing to the fact of the vast credibility of Porters theory which the top consulting companies vouch for, Strategic Management gained a lot from Porter, his two books Competitive Strategy (1980) and Competitive Advantage (1985) were seminal in viewing Strategy from the lens of Industrial Economics and understanding the Industry Structure and Competition. Also it was clear that strategy or the concept of strategy geminated only in the presence of competition, “if there was no competition there is no strategy”. (But I have some of my reservations about this double quoted statement) Henry Mintzberg et al. in their book Strategy Safari spoke about the newer set of paradigms and alternate views of Strategy, and also the changing trends, this is also reaffirmed by Robert E. Hoskisson et al. (1999) in the article “Theory and Research in Strategic Management: Swings of a pendulum” where they elaborated on the various facets the field of strategic management was subjected to, from a wholly outside view of the firm and placing more emphasis on how to compete in an industry setting, Strategic Management also at another point of time took the resource based approach which focused on internal strengths and weaknesses and how to align them with the externalities that a firm faces. Finally we find that there was a time when both the 1 Understanding Michel Porter, Joan Magretta
- 2. industry structure as well as facets unique to the firm from an internal perspective was important and a balanced view was taken. But there is one question still that I am flummoxed with;does Strategy happen when there is no competition? Why can’t a firm be a lone ranger and yet have a strategy or rather a plan, why can there be a strategy of having no competition (akin to Blue Ocean Strategies) at all and selecting avenues that are unique and disheartening other players from entering (here there is some “competition into the picture”). The question above, well I have reserved it for a later date .Now that, an immediate concern is that I have with the research Question -I shall observe the following premises explicitly:Strategy happens when there is competition. And strategy is necessary for the survival of any firm - But as I have stated earlier I have my reservations about this premise. ------------------------------------------------------------------------------------ Q2> What is my Research Question? The Question which I hope to do justice to and probe is: “How Power Inequity, Shared Values, Knowledge Complementarity andOpportunism play a role in determining the success or failure of Joint Ventures in India” ------------------------------------------------------------------------------------ Q3> Why am I doing it? People have done work in it earlier too! Agreed… Many established scholars have enunciated the need to go for Joint Ventures, Strategic alliances, and suggested that a firm must sometimes go into strategic alliances for the attainment of a specific objective but I believe a set of findings will emerge over a period of time in due course of my research that will bring the above four aspects into play and look/critique/question at the generalizability of certain existing theory in the Indian Context. With the work I am doing towards the conclusion – I aspire to come up with a framework for the evaluation of the Success/Failure (Outcome) of a Joint Venture (henceforth JV) to be conducted by Parent Organizations (one/both/’n’ parents) this will serve as a prescriptive evaluative tool it will be called POKS Framework. ------------------------------------------------------------------------------------
- 3. Q4> So let me start one by one, let me define and clarify the difference among the following: A clear demarcation to the following terms:- a) Alliance b) Collaboration c) Friendship ------------------------ d) Strategic Alliance e) Joint Venture ------------------------- f) Success of a Joint venture g) Failure of a Joint Venture ------------------------- h) Power Inequity i) Shared Values j) Knowledge Complementarity k) Opportunism ------------------------------------------------------------------------------------ Q5> What is an Alliance? A) Alliance: The word alliance was first known to be used somewhere in the 14 th Century.2 An alliance is also known by the terms accord, treaty, compact, convention, covenant, pact so for me whenever I use the words interchangeably it means the same. Definitions for Alliance Include (Extracted from Merriam Webster) a: the state of being allied : the action of allying b: a bond or connection between families, states, parties, or individuals <a closer alliance between government and industry> c: an association to further the common interests of the members; specifically : a confederation of nations by treaty d: union by relationship in qualities : affinity I would include Collaboration as an Alliance. Friendship is definitely an alliance but not a “strategic alliance” 2 Merriam Webster Dictionary
- 4. In defining a concept sometimes to draw a boundary we have to define what it is not.All Alliances are not friendships, but all friendships are alliances. Friends generally tend to have shared values, matching habits, these alliances are different, national alliances, youth movement alliances, Narmada bachao andolan alliance are different, I am not interested in addressing these, what I am interested is “Strategic” Alliance.Toduha (2004) defines an alliance as an open ended agreement between two or more firms who are independent in nature to make complementary investments in a project or a set of projects to share benefits. ------------------------------------------------------------------------------------Q6> What is a “Strategic” Alliance? Why have one? It is here onwards that the relevance of the subject matter that I am dealing with starts, a Strategic Alliance in a business context is what I am interested in, albeit a strategic alliance is a used in normal parlance as an agreement being entered into keeping the people/organizations/countries own personal interests in mind, and entailing a win-win situation. So we ask again, why must firms cooperate? Nature is not always red in fang and claw, and cooperation and competition provide alternate paths to success, so drawing from nature in business to managers must learn to cooperate and compete (Contractor & Lorange, 1988). Historically in a Business Context strategic alliances were carried out basically between a large foreign firm trying to establish itself with a local partner, so demographic expansion was an important factor, but over time strategic alliances in the 21st century have included R&D, Production, Sourcing, often involving firms of equal size, and may have similar or complementary skill sets. (Contractor & Lorange, 1988). Strategic Alliances are preferred over fully for a variety of reasons, but what is important for me is the pre-decision phase. Strategic Alliances are formed for a variety of reasons, if we don the economics viewpoint, strategic alliances are the best options for certain scenarios, like Prisoners Dilemma, Small Bargaining Numbers and Transaction Cost Theory. But if we look at some reasons majorly strategic alliances are formed so as to achieve the following objectives:- a) Risk Reduction - Product portfolio diversification - Dispersion or Reduction of fixed costs - Lower total capital investment - Faster entry and payback
- 5. b) Economies of Scale and Rationalization - Lower Average Cost and Larger Volume - Lower Cost by using comparative advantage of each partner c) Complementary Technology and patents - Technological synergy - Exchange of patents and territories d) Co-opting or blocking competition - Defensive JV to reduce competition - Offensive JV to increase cost and lower market share for competition e) Overcoming government mandated Investment/Trade Barrier - Leeway to operate as a “local” company - Satisfying local content requirements f) Initial International Expansion g) Vertical Quasi-Integration -Access to Material, technology, labour, capital, permits, distribution channels, benefits from brand recognition, link with major buyers, drawing from existing fixed market competition. Again the “strategic” term which is being used is that sunk costs are being made into complementary investments, and the agreement is generally open-ended in the sense that it does not involve one arty delivering a fully specified product for some specified payment, it is not a spot or a forward contract, it continues as long as both parties feel there interests are being met (Tohuda, 2004) --------------------------------------------------------------------------------- Q6>what is a Joint Venture? How do we assess the performance? And what are the different types of JV’s. Joint Ventures are combined efforts of two or more companies to form a new company and are undertaken primarily to bring together a synergy which is brought together by the amalgamation of core competencies of the two companies (Prasad, 2008). Each company brings together its resources comprising of Financial, R&D, Sales & Marketing and other areas of core competency etc. when these resources are put together, they give birth to a new company distinct from its parents and have different types of ownershipand at times a new type of culture or the culture which results from the superimposition of two of the existing cultures,. The underlying motive of a JV is to harness complementary skills of the partners In short A+B -- A or B is an acquisition or a takeover
- 6. A+B - C (distinct new firm) is a JV Erin Anderson (1990) is one of the few scholars who have addressed the issue of joint venture performance analysis; many have addressed the issue as to why we must form an alliance, how to select a suitable bedfellow, how national and cultural effects impact the “success” or “failure” of a joint venture. But very few have actually addressed what construes a “success” of a JV. But an attempt was made by Erin Anderson (1990) using William Ouchi’s framework, which is as per the figure below, quintessentially we have to appreciate that a Joint Venture is a distinct firm and the evaluation of a JV should be on its standalone basis and independent of the parents view, albeit the parents may evaluate the JV for its own internal reasons, but a JV is a distinct organization, and it is best evaluated by the framework given by Erin Anderson and Ouchi. Figure 1 How to evaluate Joint Ventures Erin Anderson (1990) further extended this model to put it in context of JV’s.
- 7. Figure 2 Evaluation of Joint Ventures. Also Kogut (1988) pointed out as to why Joint Ventures, one that occurs when two or more firms pool a portion of their resources within a legal organization is a selected mode by organizations to carry out a transaction amongst the other modes like acquisition, supply contract, licensing or other spot market practices. Therefore any theory on joint venture formation must first answer that question. Classification of Joint Ventures based on Interdependencies of Partners. Joint ventures can be classified on many types, 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,
- 8. here in this type of JV the market and the 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 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 technical knowhow 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 Engines 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 remain oblivious 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 hypothesize 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
- 9. restricted by the environment and the location in which they were located. Hence they have limited liabilities to change 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. Cartwright & 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. 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 continue to operate as an extension with the culture of the JV or acquired company maintained different from that of the parent. Such a marriage 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. JV’s in an Indian Context. A brief Idea and an Area I want to introduce and work on India is today talked about as one of the world’s largest domestic markets (Desai, 2011), since the deregulation (post liberalization) policies of Dr. Manmohan Singh in
- 10. 1991, India has open doors to the world, thus the erstwhile constraint of non availability of technical prowess due to high import duty and other legal hassles was annulled, but in spite of that quality and the kind of products sold in the country was still not as competent as was required by the consumer in India, thus this was a good avenue for JV’s as strategic alliances to outsource India’s cost effective mechanisms to countries across the border, as well as gain from the foreign firms and collaborate to deliver with due technical competence in both domestic Indian as well as foreign markets. Since 1994, the multilateral investment treaty and a strong deep rooted legal system takes care of the investments being made in India, and India has been an upholder of its commitment to international trade by entering into JV’s with over 70 countries. J. Michael Geringer and Louis Hebert (1989) with their study of 71 Integrated JV’s in India and Pakistan deduce that companies in India and Pakistan were highly performance oriented, more towards profitability and productivity, the foreign companies looked at these Asian markets primarily for diversification strategies and to establish a footing into these markets needed the support system of an established partner who knew their local markets, but based on our earlier statement of the phenomena post liberalization we see that the foreign companies are not only coming to these markets as a diversification strategy but also to make use of the Asian Markets competitive advantage in terms of cost and human capital. In both formal and Informal settings, the Indian Corporate culture has been a hallmark of Entrepreneurism, Business Leadership, and Ethical and Strong Corporate Governance, but on the other side there has been a high level of bureaucracy and inefficiency. Navi Radjou (2008) argues that Indian Corporate Culture has a high degree of what he calls a “innovation problem”, he contrasts western CEO’s who were more bothered about product and service innovation and Indian CEO’s were more focused on reinventing their “business models”. He further states “Indian CEOs must recognize that they can't have it both ways: they can't continually innovate their business models, while also retaining their anachronistic command-and-control management style”, This statement acts as a support to Geringer & Hebert’s (1989) statement that Indian CEO’s were highly autocratic and paternalistic and focused more on profits rather than Innovation. Radjou assets that like western companies Indian Companies must go in for a “community based” learning as the western civilizations or they are bound to lag behind, for this empowerment must be given and a paternalistic autocratic must be relinquished for this to be successful. The article by Radjou concludes with a quote from R C Bhargava, chairman, Maruti Suzuki India: "The onus is on Indian CEOs to develop a culture in which all employees are encouraged to make mistakes and break the barriers of a hierarchy." This represents the need of the hour for most Indian Companies to go in for this paradigm shift, quintessential not only for a successful JV but also innovation in general.
- 11. 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 corporate 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 after Independence 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 the entrepreneurial 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 were educated 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. I Shall explain the other Concepts and Work during Class Discussion.