THE FORMATION

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The Formationof an International Joint Venture: MarleyAutomotive Components

RANDALL SCHULER, Research Professor, Stem School of Business, New York University; PETER DOWLING, Associate Director, Graduate School of Management, Monash University, Australia; HELEN DE CIERI, Lecturer, Graduate School of Management, Monash University, Australia
In Maidstone and Lenham in Kent, and Bitton near Bristol, England, is the operation of Marley Automotive Components Ltd. In the late 1980s it entered into an international joint venture (IJV) with the US company, Davidson Instrument Panel - Textron of Portland, New Hampshire. An earlier article by the authors examined Davidsons perception of the IJV, including their reasons for the joint venture, the critical human resource issues they were facing and how they were planning to deal with several unfolding human resource issues. This article now portrays Marleys perceptions of the same issues. The purpose in using this case study to describe IJV issues is to offer information on human resource issues to readers considering an IJV as the route to globalization. Hopefully, this information will help companies to increase the chances of a successful IJV experience. Because of increasing globalization and its attendant costs and risks, many firms are entering into international joint ventures (IJV). Although joint venture formation is proving to be an integral part of business strategy for multinational firms such as Glaxo, Grandmet, IDV, and Thorn-EMI, entering and operating them successfully is by no means a sure thing (Main, 1990). Research indicates that the failure rate of IJVs is between 50 and 70 per cent (Harrigan, 1986; Levine and Byrne, 1986). Some of the most significant barriers to success involve people issues - issues relating to international human resource (HR) management. Consequently, these issues are the focus of this article. Specifically, this article describes many of the international human resource issues associated with forming and managing IJVs. It does this through an intensive case study of an IJV in its early stages of formation and development. It addresses critical start-up issues from the view of the British partner, Marley Automotive Components Ltd. These are the same issues addressed from the view of the US partner, Davidson Instrument Panel reported in an earlier article (Schuler et al., 1991). Given that the IJV has developed since our first article, this article also addressed several other unfolding HR issues identified in that first article.

The Parents: Marley PLC and Davidson-Textron

Marley PLC
Marley is one of the leading manufacturers of building materials in the United Kingdom and has similar operations in many countries throughout the world. Marleys products extend from roof tiles, roofing felt, bricks, aerated concrete blocks and concrete paving to pvc flooring, plastic plumbing and drainage goods. Marley also derives part of its profit stream from property transactions by exploiting the value of sites surplus to operational requirements. In addition, Marley is recognized and well-established as a major supplier of quality components to the European motor industry. The particular division that deals with the motor industry is called Marley Automotive Components Ltd. This division employs approximately 1,400 workers out of a total Marley workforce of 11,000.

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The nature of the automobile industry has changed drastically during the past 20 years, and the effects have been felt by all auto makers. As the automobile industry hrs become globalized, success has turned on quality products that fit right and perform smoothly and nliably. But while quality has become a major concern to the auto industry so have cost and innovation. New products and new technology are vital to success, but without cost reduction new products cannot be offered at competitive prices. Tile characteristics of the auto industry are, of course, reflected in all companies supplying it. Marley Auton- IJtive Components Ltd. is no exception. To succeed, they must adapt to the demands of the new environrnenl:. Doing so will bring rewards such as market share al-d even more important perhaps, an extensive, cooperalive relationship with major automobile manufacturers. E-sentially gone are the days of the multiple bidding system, where winning meant delivering at the lowest cost, with no assurance that the next year will be the silme. Today, the automobile companies use sole sourcing for many of their supply needs. Accompanying this is a greater sense of shared destiny and mutual cooperation: T,le component suppliers are having to change with the times. 77e multinational car manufacturers increasingly want to deal with multinational suppliers, giving them responsibility for tlk design and development of sub-assemblies in return for sil@e supplier status (Financial Times, 1 March, 1990, p. 8). Trms, it is not unusual to have design engineers from suppliers doing full engineering design of the compl nents they will supply to their customers. An important aspect of the new cooperative, sole sourcing arrangement adopted by automotive markers is the willingness to conceptualize and form longer-term relationships. For Marley Automotive this meant the olportunity to establish an international joint venture. In the summer of 1989, Marley agreed to establish an 1JV to supply instrumentation panels to a Ford Motor Company plant in Belgium starting in 1993. They chose at, their partner for this venture the US firm, Davidson Instrument Panel.

its operations to Dover, New Hampshire, in the 1950s. Its headquarters now are located in Portsmouth. A staff in Portsmouth of fewer than 50 oversees the operations of two manufacturing plants, one in Port Hope, Ontario, and the second in Farmington, New Hampshire. The lOOO-person operation in Port Hope is unionized, and the 900-person operation in Farmington is not,

The IJV: Davidson-Marley

BV

By way of review and update, Davidson Marley BV, the name of the IJV, is a 50-50 partnership between a US firm and a British firm. It is located in Born, The Netherlands. Situated near Maastricht Airport, the location was selected because it is near its primary customer, Ford. Proximity to Ford was important, because the company required its sole source suppliers to meet its just-in-time inventory requirements. The location was also selected because of favorable accommodation by the local authorities and the fact that it is close to the Netherlands Car BV production plant (a potential customer). The facility is being constructed so that expansion can be easily incorporated and approved by the local council. The plot of land is sufficient for expanding by a factor of at least four. There were several reasons for the IJV between Marley and Davidson. First, Ford Europe asked Marley (who had been supplying its needs for the Sierra line in the UK) to supply its needs for its world car to be produced at the Genk plant. Consistent with the world car concept, however, Ford Europe wanted worldwide sourcing. A joint arrangement with Davidson Instrument Panel made a great deal of sense. It filled the worldwide sourcing requirement and it was a company Marley knew and trusted. Marley had been a licensee of the Davidson technology for instrument panel skins and the foam injected to give it shape and substance. This long-term arrangement had given each other time to get acquainted and learn about the others management style and philosophy. The compatibility in their styles provided confidence that an IJV might be successful. They were also compatible in what they could contribute to an IJV. Marley had marketing skills, knowledge of the European market and the ability to oversee construction of the new facility and provide administrative support. Davidson had the technological expertise and complementary administrative skills. Another reason for the IJV was to share the risk of a new venture. While Davidson wanted to get into Europe and Marley wanted to expand its automotive business, there was no guarantee that Ford would be successful in Genk. Marleys primary businesses are constructionrelated. To reduce its dependence on the construction cycle, it had decided to expand its automotive business. However, Marley did not want to do this without minimizing the risks. The sharing of rewards was worth the sharing of the risks with a long-term business associate. 1992 305

Davidson Instrument Panel

Dividson Instrument Panel is one of 33 divisions of Ti:xtron, an $8 billion conglomerate headquartered in P .ovidence, Rhode Island. Davidson Instrument Panel and its two sister divisions, Interior Trim and Exterior Tim, make up Davidson-Textron. All three divisions at.? component suppliers to the automotive OEMs (tmriginal equipment manufacturers). Davidson-Textron is the largest independent supplier of instrument panels fc r the US automobile industry. Originally begun as a maker of rubber products for drug sundries in Boston in the early 185Os, Davidson moved EU .!OPEAN MANAGEMENT JOURNAL

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A joint venture with Davidson at a greenfield site in Born also offered Marley the opportunity to introduce a new management style and structure. During the 1980s more than 100 Japanese firms have established operations in the UK. In doing so they have implemented their human resource practices of workforce flexibility, minimal job classifications and use of teams with a total quality strategy. Though practically unknown in British industry, including Marleys other operations, these practices seemed to be working well. These practices are described in extensive detail by Peter Wickens, the Personnel Director of Nissan Motor Manufacturing UK (1988). The opening of the greenfield site in Holland, and also the creation of another joint venture in the UK with a Japanese company, offered Marley the opportunity to learn more about the Japanese policies and practices and possibly extend them to other operations. This desire was certainly consistent with Davidsons methods of operations, since it has implemented many similar practices in its plants in New Hampshire and Ontario, Canada. In deciding upon the IJV arrangement, Marley and Davidson had a choice here: they could either build a greenfield site or take over a brownfield site. While the brownfield option is faster and avoids all the aspects of construction, the two partners thought it was more important to build to their own specifications. It was critical to both that everything be designed to be compatible with a teamwork, flexible job assignment-orientation. A final reason for the IJV location was the potential it offered for competitive flexibility. Locating the plant in Born places it near Audi, Volkswagen, Mercedes and Volvo operations. While these companies often supply their own instrument panel needs, Davidson-Marley BV could potentially offer a better product at a lower price. To help develop this potential, Marley established a small marketing company. While not meant to be exhaustive, these were the major reasons for the IJV from Marleys perspective. They are certainly consistent with Davidsons motives and with those suggested in the literature (Datta, 1989; OReilly, 1988; Gomes-Casseres, 1989; Harrigan, 1987a; 1987b; Shenkar & Zeiia, 1987; and Main, 1990). Nonetheless, this does not ensure success nor diminish the risk of failure.

Both Marley and Davidson think that they can overcome the odds of failure in their IJV. Much of their confidence rests on the fact that they know what it takes for a good partnership to survive and flourish (as illustrated in Exhibit 1). Despite the many positive features of the Davidson Marley BV IJV, there is a consensus that the very nature of joint ventures contributes to their failure - they are a difficult and complex form of enterprise (see Shenkar & Zeira, 1987%; Main, 1990; Brown, 1990). As described in our earlier article (Schuler et al., 1991), the critical issues which IJVs face revolve around control, conflict, goals, management styles and degrees of commitment. Who controls the IJV - from its inception through to the early critical staffing appointments - can lead to failure. The Davidson Marley BV IJV has a board of directors with two members from each parent. All major decisions are to be decided by this board. Whenever local Dutch management or their staff encounter key issues, the board decides. To ensure that IJV development and production deadlines are not compromised, Ford requested that Marley retains one less share in voting on major issues until production starts in January 1993. This arrangement would help address any critical issues of control and conflict if such were to arise during the start-up period. Other positive factors included joint selection of the general manager and human resource manager, and an arrangement whereby Marley supplies the local marketing knowledge and makes the arrangements with the local suppliers, while Davidson supplies the technology and the financial systems (including the financial controller for the operation). These arrangements thus remove many potential disagreements and conflict and form part of the IJV agreement. Thus, errors of omission are avoided by extensive discussion of issues and formal recording of all agreements. In terms of goals, management styles, and degrees of commitment, Marley believes that it has compatibility

2. Co-operation as equals (based on parity, no domination 3. Openness, mutual trust and respect of others as persons 4. 5. 6.
7. d. 9. 10. and their values, capabilities and objective understanding of their intentions Building on each others strengths Reducing each others limitations Each has something the other needs (resources, access, etc.) Pooled capabilities and resources permit taking on tasks neither could do alone Two-way flow of communication (breakthrough of communication blocks) Mutually perceived benefits Commitmenr of leadership and middle management to find some shared values, without ignoring the fact that they are not identical Co-learning flexibility A win-win orientation or paternalism)

1. Shared objectives

(a joint mission)

Reducing

the Risk of IJV Failure

and

Managing IJVs can be very difficult. The difficulties, thus the reasons for failure, include;

Partners cannot get along; Managers from disparate partners with the venture cannot later work together; Managers within the venture cannot work with the owners managers; Partners simply renege on their promises; The markets disappear; and The technology involved does not prove to be as good as expected. 306 EUROPEAN

11. 12.

Exhibit 1

What is a good partnership? JOURNAL Vol 10 No 3 September

I
1992

MANAGEMENT

Tf IE =ORMATION OF AN INTERNATIONAL JOINT VENTURE -v. ith Davidson on these three issues. It is important that f: rms interested in IJVs give serious consideration to the degree of cultural homogeneity, This is particularly the c,lse with regard to North American and Western European countries which share a similar Western cultural heritage. These cultural similarities tend to (Ibscure difficulties. Such obfuscation is all the more likely when the differences are subtle and not obvious d luring initial negotiations. For example, when dealing bjith Asian firms, because Western managers expect differences, they will be more sensitive to cultural diversity. When dealing with firms which are perceived tc be culturally similar, managers will be less sensitive to differences which while being subtle are still important (Brown, 1990). P s a case in point, there are important differences in l;inguage usage between English-speaking countries: i\ mericans tend to use the term plant to refer to the building in which operations take place and machinery i!: located, while the British use the term plant to include machinery. Natural wastage means voluntary rc+gnations and retirements in the UK but something rather different in the USA! It is important that both pirties to a joint venture clearly define key terms early on in discussions to minimize the problems attendant Mith miscommunication. This suggests that firms entering into a joint venture establish a glossary of terms nngardless of whether they think they have a common lr nguage. Where differences in definition exist or in bvoader matters such as what selection methods to use, it seems advisable to go with local custom. T ems while it appears as if Marley and Davidson are on top of the critical issues that can give rise to IJV failure, tk ey still face many human resource issues that are bt!ginning to unfold in the evolution of their partnership. These issues include the assignment of managers, trrmsferability of human resource, managers timespending patterns, human resource competency, management loyalty issues, and career benefits and pl,mning (Shenkar and Zeira, 1990). The following sections show Marleys views on these issues. , UK firms are still using references as proof of someones fitness to do the job. More than 70 per cent of UK firms use them compared with just over 11 per cent in France Personnel Today, February 5, 1991, p. 5). In selecting the general manager for the IJV, Marley gave significant weight to experience in manufacturing. Interviews were used to evaluate the degree of fit with the operating style and management philosophy of the parents. Employment tests such as aptitude and personality were not used. Once appointed, the general manager participated in selection of the IJVs human resource manager in February 1991, using a similar process. These managerial appointments coincided with the final property purchase and ground breaking for the new plant. While both of these individuals could have been brought in even earlier to achieve greater feelings of ownership and involvement, this was not done due to cost considerations and the need to carry out these initial recruitment assignments jointly. However, this group has now been given the freedom to select, appraise, train and compensate the 250-300 employees who will be hired by August 1992. The current, relatively high unemployment rate in this region (around S-9%) should ensure a sufficiently large applicant pool. Although Marley had nominal lead responsibility for initial recruitment, the strategy for recruitment, training and compensation was developed jointly by senior human resource executives at Davidson and Marley agreed upon by the Davidson Marley board.

Transferability

of Human Resources

The Assignment

of Managers

The general manager for the IJV has been selected. He was selected by both parent firms from three Dutch finalists identified by the search firm Spencer Stuart. The process was done in a way consistent with European practices. Marley recognized the importance of adjusting to the employment practices of the host country rather than just imposing parent country pr61ctices on the otherwise local (i.e. European) operations. While there is considerable divergence with rer;ard to the development of relatively high minimum st<jndards of employment conditions as a consequence of European integration, there is divergence in terms of both specific human resource practices and implementation of HR policies. For example in comparing the UK and France on the use of reference checking:

Both parent firms are committed to the success of the IJV and are transferring experienced employees to the IJV. Even with the most systematic planning process, unforeseen events will occur. For example, the engineers assigned to design the plant were supplied by Davidson. While highly qualified, they calculated measurements in feet, inches and US gallons. The local Dutch engineers had to convert these non-metric measures when letting contracts to Dutch firms and gaining approval from local authorities. Since Davidson will supply the financial controller, US accounting procedures will be used and a corresponding set of accounts will need to be established to meet Dutch auditing requirements.

Allocation of Start-Up Responsibilities

Initially, IJV staff will need to focus on immediate, shortterm issues in establishing the joint venture. The IJV staff are not under pressure to produce an immediate profit since the business plan allows for a reasonable time horizon to achieve profitability. Marley has established a sales and marketing group in The Netherlands for the IJV to look for new contracts. Both parent firms will offer training programs and support, including tech307

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nical training for key employees who will in turn train the other employees. Start-up costs will be shared by both parent companies.

I 1. They have long term objectives, we dont. 2. They get more than they give. 3. Their strengths (market access) were overestimated. 4. We dont communicate any more; we just let them do their thing. 5. They compete with us more than they co-operate. 6. They (or we) havent assigned the best people. 7. Our combined decision making is too slow, compared to competition. 8. We are not organized to learn from them, (or our people dont feel they can learn much from them) but they absorb everything we give them. 9. We have agreed that the best way to work is not to work together. 10. They are developing organizational capabilities which will make us unnecessary in the future. 11. Whoever cooked up this deal was pretty naive. 12. Our commitment to the success lo this partnership is declining rapidly: mutual trust and respect are minimal.

Conflicts of Loyalty
For both parent companies, the work of the planning teams is essentially completed. The financial controller (a US expatriate) is scheduled for a three-year term after which a local will take over. The staff will then be entirely Davidson-Marley BV, and conflicts of loyalty to either parent company should be minimal - particularly as the venture grows and achieves success, according to Mr. Chris Ellis, Business Development Director of Marley. The general manager and his key staff members are employed by Davidson-Marley BV and as such have career paths anchored within the joint venture rather than the parent companies.

Exhibit 2

Danger signs in partnerships

Progress to Date
To date, the two parent companies of Davidson-Marley BV appear to be benefitting from a careful planning process and a longer-term perspective with regard to profitability. Although trial production runs are just beginning at the time of writing, there have been no obvious signs of partnership dissolution or disaster. Nonetheless both parents are monitoring their relationship, checking for danger signals of a deteriorating relationship including the existence of statements such as those listed in Exhibit 2.

related to the quality of the relationship between the two partners, and the human resource decisions which flow from the relationship. We believe the Davidson-Marley BV case is a good example of an IJV where both partners have worked hard to develop the initial relationship and have taken human resource issues into consideration throughout the planning process. While this does not guarantee that Davidson-Marley BV will be successful, we believe the behaviors of the parent firms to date are good predictors for the future success of the IJV.

Note
The authors express their appreciation for the support provided by a research grant from the Human Resource Planning Society, New York, and for the generous time and assistance from Chris Ellis, Business Development Director and Norman Taylor, Personnel Manager, both of Marley Automotive Components Ltd.

Conclusion
For an increasing number of firms in many countries, going international is no longer a choice - regardless of firm size or product. The world has become far too
interconnected for many products and services to be offered within a domestic market context only. Faced with this reality, many firms in the advanced western

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economies are seeking to establish their presence in the world market. For example, many large British firms such as BP, ICI and Marks and Spencer have already developed a global presence. These firms entered the global arena relatively early via the direct establishment of their own subsidiaries. This mode of internationalization is less of an option for many firms today because the establishment of subsidiaries requires substantial commitment of time and resources. Thus, many firms are considering entry into global markets via various forms of cooperative venture and strategic partnerships. One form of partnership currently receiving considerable attention is the international joint venture (IJV). The IJV is popular because both parties are able to share risk exposure (i.e. political and financial risk) and to optimize the strengths of each partner (e.g. cash, experience, or technology). There are, however, many potential problems involved with the establishment of an IJV. These problems are often 308

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