Abstract

International joint ventures (IJV) are economically and legally discrete organizational units formed by two parent companies that cooperatively aim at investment to pursue certain objectives. This report has focused on the involvement of HRM on the different phases of International joint venture integration. The report has addressed the international joint venture issues that Alibaba in China and Amazon  are likely to face during their integration. Thus, it has focused on different phases of IJV integration to conclude the relationship between the two entities and offer useful information on the cross-border process. Analysis of different phases of IJV included the major institutional and cultural differences which separate the two countries, stages of internationalization, IHRM practices, and roles of expatriates as well as institutional arrangements. Finally, key recommendations on strategy formulation regarding the critical approach to IHRM in relation to IJV process are offered.

Keywords: Joint Venture, International Human Resource Management

Introduction

There are currently a number of e-services that are currently offered through the internet which include buying and selling of goods and services. Amazon and Alibaba are two big giants within the e-commerce service industry and are competing against each other. Amazon is well recognized in Europe and North America while Alibaba has control over China. Both help shoppers to sell their goods like electronics, apparels and other accessories in the online market place. The two companies are planning on International joint venture process as their market entry strategy. Thus, their route to globalizing their businesses has been aimed at a joint venture which they believe will enable their international expansion of their businesses.

International joint ventures have become a key form of entry through which organizations are venturing into global markets (Yan and Luo, 2016). Thus, for Amazon and Alibaba to accomplish their international expansion, the organizations can rely on IJV as their market entry strategies. An international joint venture is typically relied on when the essential integration between the firms is great and venture corporate is categorized by decision making urgency and uncertainty (Yan and Luo, 2016). In bringing firms that have different knowledge bases, skills, and organizational cultures, IJV has created unique learning opportunities for the companies. Ideally, IJV is essential in forging new knowledge, various transfer pathways across both traditional and technologically linked positions.

International Context

IJVs typically are considered as a long-term joint strategy for acquiring active daily management of a variation of HRM issues among the firms (Luo and Tung, 2007). The IJV integration process, in this case, entails different variables that were measured for the strategy formation. These include the PEST analysis, Hofstede cultural dimensions, institutional differences and institutional arrangements in the two countries which are important in understanding the international context.

PEST analysis

The purpose of the Pest analysis is to identify the political, legal, environmental, technological factors which can raise managerial problems and barriers with the international joint venture implementation. The pest analysis is an important tool by companies to track the environment in which they venturing into. A PESTLE analysis has two major functions for the firms. First is that it enables identification of the environment in which they are to operate. Second is that it offers information that will permit the organization to forecast circumstances and conditions that it might face in the future (Rothaermel, 2013). PEST, therefore, is a precondition analysis which needs to be utilized for strategic management. In this case, the pest analysis is essential in identifying the different factors between the two countries. In order for the companies to have a successful implementation, they have to be aware of the potential barriers that they are likely to encounter while employing the joint venture as a market entry strategy.

Pest Analysis of China

Political factors

Political factors within China include government guidelines and legal concerns. China is well known for its regulated and censorship system. Both informal and formal rules, which firms have to abide by the influence of the country. China adopts communism or socialist system in their political structure during their decision-making procedures. The steadiness of the Chinese Government is certain and quite stable since the organization of the government is not publicized. The corporate freedom in China is well-thought-out to be tight since there are rules such that have restricted firms from other countries venturing in the country (Guthrie, 2012). But recently it has offered an open market for the outside world to set up business within the country.

Economic factors

Over the past few years, China’s economy has seen significant GDP growth rate. It has been reported that if China continues to accelerate its GDP at this rate, they will become one of the biggest GDP. Some of the factors that have contributed to this growth are skilled and cheap labor, increased urban growth, increased export business and increased savings and labor productivity. The Chinese government has direct control over its financial institutions and banks (Guthrie, 2012). Relatively, investment done in China are also regulated and controlled since they are vulnerable to political issue and impact. China’s income tax rate is high and a moderate corporate tax. The government has increasingly encouraged more foreign institution increasing the number of FDI within the country.

Social-cultural factors

The cultural and social factors are significant aspects of China have played an important role since there has been increased change in demographics. China has experienced significant population growth which has altered the cultural values as well as social trends. China is considered a collectivist culture according to the Hofstede cultural dimensions (Guthrie, 2012). The level of literacy in China is over ninety percent with over forty-two million internet users within the country. The general living standards of individuals in China have been enriched with most of the Chinese shifting to the westernization.

Legal factors

The labor regulations in China have prevented overall productivity and employment growth. For instance, the non-salary for hiring an employee is high. On the other hand, dismissing of a worker may require earlier consultation with the labor Union and local labor bureau (Guthrie, 2012). China has increasingly protected its home industries with regards to the law. The policies established for better protection of the country will impact the company.

Technological Factors             

China has highly increased its internet infrastructure as well as technology with wide coverage across the country. They have allowed high-speed connectivity within all the regions which has benefited a number of organizations with regards to online shopping and e-commerce services (Guthrie, 2012). Due to technology, some new products are being produced with increased mechanisms such as extranet and intranet.

Pest Analysis of UK

Political factors

The United Kingdom is ruled by a constitutional monarchy that rules under the effect of a parliamentary system. The UK has a stable, fair ruling system which offers the country a number of opportunities for businesses operating within (Kolios and Read, 2013). Some of the positive political factors include a proactive government, a fair country, and a stable political system and the split into local administrations. However, there is some hidden corruption in the ruling system and uncertainty of leaving Brexit which has impacted the economic growth of the country.

 

Economic factors

The UK holds one of the strongest economic positions as compared to other countries. Their GPD growth rate is high with a diverse economy that has supported the growth of the country. With their large population, they have enabled even small markets profitable due to the varied economy with both great private and public segments. UK allows unrestricted market thus increased FDI (foreign direct investment). Despite the slow regaining from the 2008-2009 economic downturn, their GDP has recorded a high growth rate as compared to other countries (Kolios and Read, 2013).

Social-cultural factors

UK’s high social standards have contributed to better circumstance and living standards within the country. The government offers many free public facilities and allows free migration which results to a cosmopolitan setting as well as the cheaper and large environment. The UK’s educational infrastructure has been considered suitable and of very high quality. Ideally, the UK qualifications are highly respected and recognized all over the world. However, the government is facing challenges due to income disparity which has led to poverty in some regions (regional imbalance). Relatively, there is an increasing and high dependency ratio and social unrest with reference to ethnic groups and migration.

Legal factors

There are various labor laws that impact business operating within UK regions. According to the European union labor law, the maximum number of working hours is forty-eight hours in 7 days (Kolios and Read, 2013). Other legislative rules outlaw the discrimination of workers on the basis of religion, sex, race, disability, and sexual orientation. Relatively, there are a number of changes such as the national minimum wage that have been updated recently which are influencing investments within the UK.

Technological Factors

In the UK, the number of internet users has increased significantly due to most advancements in telecommunication and broadcasting network services. The UK has good technology access thus leading to quality innovation. Ideally, some of the positive technological factors in the UK include the increased invention skills, proficiency in IT and science, effecient laws regarding intellectual proper and plenty of rivalry for technological development which has stimulated growth within the country (Kolios and Read 2013). The phone market has grown at a higher rate thus supporting technological advancement within the country.

Stages of Internationalisation

A Firm that is entirely domestic has to undergo different stages of internationalization before it becomes completely global. This is part of the corporate plan to ensure that the get into the international business in response to external factors. During internationalization, a firm may start by exporting their products for experimentation and if they consider the results satisfying they can increase their international base.

Ethnocentric approach

In China, the ethnocentric approach is the first choice that most of the MNC look at since it offers the firms the opportunity to dictate the level of control that they acquire in their operations in subsidiaries. Chinese company adopts this approach with an objective of selection and recruitment to fill the major roles in subsidiaries with expatriates from the home country (Harzing, 2001). In this case, the expatriates are important in building a common goal and interest with the parent company culture. Relatively, it is important in ensuring that the parent company has a large choice of selection from employees. However, this approach is at times costly since it requires both direct involvement of expatriate life. It may also impact the knowledge and local perspective of the expatriate.

The reliance on this approach as an HRM entry strategy into China has to be carefully examined before being adopted. One of the major factors that need to be considered is the difference between the Chinese culture and UK culture The ethnocentric approach can be successful in the initial stage of the joint ventures since it enables the transference of technology and knowledge from MNC into the subsidiary. The approach would also be suitable since the MNC has an influence on the subsidiary management depending on the acceptance of the Chinese partner to take a back seat due to the gap in skill level and knowledge. Thus there is a need for an expatriate to improve the skills of the local staff to a more localized approach.

Geocentric approach

The geocentric approach is an internationalization process that is seen to seek more attractive approach than ethnocentric (Luthans and Doh, 2012). In this approach, they seek to recruit the best people for specific jobs within the organization, despite the nationality. The adaptation of this practice in staffing may lead to problems such as reliance on migration laws to require local national’s employment. Relatively, this approach might be hard to implement since there is increased training, relocation costs, and training. It requires a more centralized technique from the parent firm on staffing process that lowers the autonomy of subsidiary management. Despite being costly, it has two major advantages, one it permits the multinational organizations to build a pool of senior global managers and second it lowers the propensity of national identification of managers with the firm’s subsidiaries. This approach is considered best fit for HR practice which slowly allows the MNC to align its IHRM objectives more effectively.

Best approach

UK and China although culturally different they do have some cultural similarities that may help in creating a sustained relationship. To decide on the best approach, there are certain factors that need to be considered since they have an impact on the process of internationalization. These include alteration of the institutional environment, cultural differences, the skill level of both countries and community interaction. Based, on all factors above, the best approach would not be one but a combination of ethnocentric and polycentric. The initial entry strategy based on the joint venture would be the ethnocentric approach since the role of the expatriate in management is considered important in setting up training and development of the local employees and ensuring that they have an agreed standard with the two parent firms

The market entry strategy will entail the entry phase and the growth phase to ensure proper internationalization. The entry phase is an initial stage that would be adopted and the use of expatriate would be necessary. This would deal with the transfer of knowledge and skills, training and development, dealing with the community and handling of laws and regulations. The growth phase, on the other hand, would entail the transfer of knowledge, cost-cutting measures, analysis of the market and competitors, interacting with the local government and motivation of staff.

Cultural differences

Without creating cultural awareness between the two parent companies, embracement will occur. Failures faced by most of the IJV companies are caused by neglected cultural differences between the two parent companies. The exploration of differences between China and the UK is used to offer a number of recommendations to the international managers about the best practices. Cross-cultural differences may create problems in business relationships. Thus, understanding and managing cultural differences are essential during IJV integration.

Hofstede cultural dimensions have acknowledged five different dimensions of culture categorized as individualism vs collectivism, masculinity Vs femininity power distance, and short-term vs long term orientation and uncertainty avoidance (Minkov, 2018). Hofstede found out that China has a low degree of taking care of themselves thus low individualism score of 20. This is in contrast with the UK which is part of the western society which is categorized as having high individualism score of 89. Ideally, the Chinese collectivist culture indicates that Chinese managers will highly associate with their workers. On the other hand, the UK emphasize more on independent control (Minkov, 2018). The power distance is considered to be much greater in China as compared to the UK. This means that the British negotiators have to be careful and pay attention to the organization hierarchy of their Chinese associates. With regards to the high PD in China, leaders are more autocrat whereas in UK culture with low PD leaders are a resourceful democrat.

There are a number of key cultural values and norms that the UK need to be aware of their business operations in China. Attitudes towards time vary between the two cultures. The UK believes in fast decisions since time is money and ae fast to conclude while the Chinese prefer having slow and accurate negotiations (Minkov, 2018). This brings a contrasting view on the short-term vs long term orientation. For instance, the UK culture adopts a renegotiation phase through which they shorten the negotiation process while the Chinese are more pleased ahead of gratification over the long term. Thus, this might lead to the failure of negotiations and mistrust.

Institutional arrangements

Neoliberalism

Neoliberalism is considered as modified liberalism that tends to favor a country’s free-market capitalism (Dunne, Kurki and Smith, 2013). Institutional arrangements of Chinese firms have been characterized by neoliberalism. China has faithfully carried out the policies that explain the rise of the country’s economy through the free market which has liberated the Chinese people. Through the opening and reform policy, the organizations in China have seen neoliberal restructuring. The Chinese organization development strategy through neoliberalism aims at generally creating an environment in which the capital investment is cheaper as compared to their exports China has taken advantage of globalization with few trade barriers to serve a larger market and suck in large amounts of foreign investments and capital that will supplement their own.

Neo-corporatism

Neo-corporatism is considered as the corporative relationship between the government and interest group for the purpose of maintaining a proper procedure for formulating and implementing economic policies (Dunne, Kurki and Smith, 2013). Within UK organizations are categorized under a scheme of interest presentation in which the various units are structured into a restricted number of compulsory, outstanding and non-competitive, functionally different and hierarchically well-arranged groups, licensed or recognized by the government as well as given a representational monopoly with respective categories. The organizational structure of the UK firms allows them to make decisions at the company level without being limited. The organizations are free to operate with wider access and increased success of the firms.

Globalization and IHRM practices

Role of the expatriate in IJV

Given the diversity in institutional tasks and environment, IJV faces diverse situations that are quite different from other organizations.  However, the transfer of knowledge, culture and socializing in IJV can be time-consuming and very expensive. Standard rules, procedures, and regulations may not be viable without reliance on the firm’s culture and socialization.  An effective alternative for the organization success in IJV is to place expatriates in the top management positions to facilitate effective management of the IJV integration (Reiche and Harzing, 2011). An expatriate is a person who has been located from the parent country to another for work purposes within a multinational company.

The management of expatriate from both parent companies in the International joint venture is important in determining the failure or success of the international business (Simmons, 2017). Expatriates are offered international assignments which include position filling (skills gap, technology transfer, the launching of new endeavor), management development (development and training purposes, assisting in the development of common corporate standards and values), organizational development (control, competence, practices and procedures and transfer of knowledge).

Expatriates managers are essential agents of direct control, socialization, competence transfer, boundary spanner, and language node, transferring knowledge, skills, and recruitment of employees (Reiche and Harzing, 2011). The role of the expatriates entails tactical, functional and developmental global assignments to lead the team in working on an international level (Harzing, 2001). They carry out the cross-cultural training, develop training programs for career management and talent management of employees within the firms (Cole and Nina, 2011).

In order for organizations to gain full control in IJV, it is important to fill the top management with expatriates, expatriate managers are also important in control of strategies over the foreign subsidiaries (Isidor, Schwens and Kabst, 2011). Ideally, control is vital in both organizations for the success of the joint ventures. IJV control is considered essential for the success of IJV integration since it offers a guide and strengthens the course of cooperation. Considerably, the parent firms have to introduce certain managerial responsibilities for effective control and strengthen the cooperation to overcome the limits of IJV.

Recruitment/retention of talent in the (IJV)

While recruiting employees for international operations, the firms must identify the need for international experience and knowledge as a criterion for the selection and recruitment process. Training and development improve the current work behavior and skills thus enabling the current of the employee to perform better in their roles within the international level (Özbilgin, Groutsis, and Harvey, 2014).  This will improve the employee’s abilities with regards to their future position in the IJV. Skills and knowledge are essential in a role that the firms anticipate an employee to move in the IJV. Training and recruitment can offer support to enable the employees to adjust the new country and increase their likelihood of improved performance within the joint venture.

In this case, the recruitment and training process should include both a polycentric and ethnocentric approach. This means relying on both expatriates from the two firms. This means that the training and development of employees involve hiring management from both parent countries. The recruitment process in this technique involves the creation of a candidate pool, formulating of training strategy and self-selection. In this case, the expatriate employees from the parent countries will provide effective interests for effective knowledge transfer.

Cross-cultural training

Cross-cultural entails training employees on cultural differences between nations. In a joint venture, creating cultural awareness is essential in running a smooth operation across the nations. In the current scenario, cross-cultural training is essential for a joint venture that involves different culture and nations. Cross-cultural training involves creating a general awareness which involves improving the awareness of foreign clients, foreign employees and effective negotiations, supervising and management of staff (Cooke, Veen, and Wood, 2017). Cross-cultural training seeks to increase communication gap between clients and employees within the joint venture.

Advantages and disadvantages of working in a diverse managerial group

Businesses are acknowledging the need for and relevance of investing in the diverse managerial group as their general talent management practices. Diversity has been crucial in the current global market place as companies continue to interact with different clients and cultures. Among the advantages of a diverse managerial group are increased productivity since it brings diverse talents with similar goals with a diverse set of knowledge and skills (Huxham and Vangen, 2013). There is increased creativity and quick decision making thus effective problem-solving solutions. A diverse managerial group is able to attract more talents and retain diverse team which propels can propel the joint ventures.

Effective communication is considered as an effective driver for success within a joint venture. However, lack of effective communication directly affects productivity due to cohesiveness (Schuler and Jackson, 2008). Integration issues develop due to a diversity of the managerial groups. Ideally, when such managerial groups create informal divisions, they hinder social integration. This can also lead to a situation where the diverse staff may avoid each other hindering effective sharing of skills, knowledge, and experience thus resulting in reduced team efficacy, growth, and productivity.

Recommendations and conclusion

Cost-effective and efficient ways to enter the foreign markets have allowed companies to exploit synergies and share risks with partner companies through international joint ventures. Joint ventures serve as learning systems where the partners within the joint venture are offered the opportunity to create awareness about each other. Motivation, capacity, and ability to learn at the group, organization or individual levels are critical for the success of the joint venture. Amazon and Alibaba need to be aware of the risks and limitations that are inherent in the endeavor.

Thoughtful structure and careful planning are critical in increasing the chances of success within an organization. An international joint venture can consequence in failure or frustrating involvement due to inadequate strategy and planning. Being an effective way to enter the market it requires the partners to understand the cultural and national differences, legal, political, economic and social differences to make the partnering in the form of an IJV more attractive. Human resource management practices are essential in the transfer of knowledge and skills for global integration. Both polycentric and ethnocentric approach is essential for building effective training for the employees with the aim of increasing interaction between the workforce. Thus, a successful IJV needs to understand the level of imbalance, training needs and human resource development practices that will influence the IJV into success.

 

 

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