Category International Joint Ventures

Background

International strategic alliances have been growing in importance in recent years as a choice vehicle for companies to expand their product, geographic or customer reach (Contractor and Lorange, 1988; Gugler, 1992). Between 1990 and 1995 the number of domestic and cross-border alliances grew by more than 25 percent annually (Bleeke and Ernst, 1995).

As the term ‘strategic alliance’ implies, companies involved in a strategic alliance join together in an exercise of shared strategies and vision, usually in order to be able to handle their environment and markets more effectively, but not shared financial and managerial activities. The companies may own certain proportion of each other's shares, but they do not become a jointly owned entity and do not lose their independence. They may even exchange senior executives on a reciprocal short-term 'visit' basis, and develop common career management learning and development policies, but they do not merge their employees.

Joint ventures move a few steps further than strategic alliances, to shared assets and ownership, pooled skills and knowledge, mixed employees, and joint management. Joint ventures have become a popular mechanism both nationally and internationally and their numbers have grown dramatically since the 1980s (Geringer and Woodcock, 1989; Harrington, 1988; Hergent and Morris, 1988).

International joint ventures, formed by organizations in two or more countries, have become a widespread form of cross-border business cooperation. They offer unique benefits of cross-culturally meshing each organization's complementary skills, assure or speed market access trans-nationally, leap-frog the host nation's technological gaps, and strategically respond to the increasingly intense national and global competition (Killing, 1982; Beamish et al., 1994).

International joint ventures have proliferated because individual companies recognize that expansion into new markets can be resource-intensive and risky. Traditional models of acquisition and merger are less attractive, especially if the venture is product- market- or time-dependent. Companies may meet significant resistance to opening new markets in foreign countries, as governments strive to protect local firms (Datta, 1988).

Many governments, notably those in the former socialist countries of east and central Europe and a vast majority of the so-called developing countries around the world, may require a stake in international joint ventures or insist that local companies have a significant holding of the new company equity.

Joint ventures, and indeed other forms of strategic alliances, have had a mixed record. As Bleeke and Ernst (1995) point out, the term alliance can be deceptive. In many cases, an alliance really means an eventual transfer of ownership. The median life span for alliance is only about seven years, and nearly 80 percent of joint ventures - one of the most common alliance structures, ultimately end in a sale by one of the partners.

Many reasons such as strategic misfit, pre-occupation with short-termism, and incompatible organizational and human resource management policies have been offered by researchers as the causes of the relatively high failure rate of alliances (see for instance, Niederkofler, 1991; Harrigan, 1986; Harrington, 1988). International joint ventures also appear to be particularly susceptible to failure on the management and other behavioral fronts caused arguably by higher potential for cultural misunderstandings.

As Faulkner (1995) puts it, long term success, whilst obviously reliant upon the economic benefits, is also particularly strongly dependent upon the attitudes of the partners towards each other, how they manage the joint enterprise, and on the degree to which the partners adopt a positive learning philosophy, thus enabling the alliance to evolve, all of which are influenced by the cultural characteristics of the partners involved. Indeed, many of the problems and misunderstandings in international alliances and joint ventures have their roots in the cultural differences existing at both national and organizational levels.

Examples of the effect of cultural differences on international joint venture performance have been documented by Peterson and Shimada (1978) and Simiar (1980). They found that cultural differences frequently led to failure on the part of parent company managers to 'understand' one another. The resultant breakdown of communications generally had significant negative consequences, sometimes leading to collapse of the venture.

The implications of national culture for international joint ventures (IJVs) are most likely to be influenced by the national cultures of the partners and the socio-cultural and political economy of the country in which the IJVs are located as well as the relevance of other closely related factors such as organizational culture and the creation of the ventures.

The extent to which other nations’ cultures might influence any firm with overseas interests depends on the degree of its internationalization and on the aspects of its activities (Tayeb, 1996a).

Internationalization

Internationalization process could entail various stages and forms from simple export or import through to franchising, licensing, turnkey projects, to establishment of joint ventures and wholly-owned subsidiaries. The extent to which a company decides to internationalize depends, among other things, on the size and nature of their domestic market, their production capacity and capability, and the financial and other resources like the expansion into foreign markets requires.

The relevance of other peoples' cultures become greater for a firm as it spreads its activities and products beyond its national boundaries to reach foreigners with different value systems and tastes. The farther internationalization goes, the more company's involvement with foreigners will be, and the more sophisticated the device would have be to respond to their demands and expectations.

Major aspects of organization

There are three broad areas of activities in which virtually all companies engage:

• those concerned with the strategic and planning aspects of their business;
• those related to their internal organization (notably human resource management);
• and those concern the interface (e.g. marketing and negotiation) between internal and external aspects of their activities.

The extent to which national culture influences organizations' activities, even in the case of fully globalized ones, depends on the types of activities performed.

For international joint ventures this relevance of culture is most pronounced at the initial stages of negotiations between the would-be alliance partners, and then later at the core values and strategic policies that they would develop jointly and the processes leading to their agreements on their characteristics. These stages of cross-border cooperation require sensitivity to the cultural backgrounds of the negotiators and of the employees who later staff the venture. Cultural insensitivity here is a prescription of failure (Konieczny, 1994).

Language

One of the major issues concerning negotiations with trade partners from other cultures is language. Although it is not always necessary to know the partners' mother tongue, various research studies have shown that a correlation exists between successful company performance in winning new business in foreign markets, and the ability of the company to conduct its business in the language of the customer.

Competence in foreign languages is most needed by those involved in export, marketing, sales, technical work, arranging a joint venture deal and any other activities aimed at establishing and facilitating trades between companies and institutions concerned.

It is of course possible, and that is precisely what many business people do, to hire an interpreter. But the knowledge of a partner's language or the use of an interpreter is not enough to create shared understanding between people from different cultural backgrounds. Language represents and expresses the culture, the value systems behind it. Not knowing this underlying culture can cause problems.

As Jankowicz (1994) points out, some people tend to underestimate the difficulties involved in the creation of shared understanding and scarcely recognize the issue of cultural differences.

Polish and French Managers

Jankowicz makes a further pertinent point, in the context of the problems involved in teaching Western management theories and practices to Polish managers. Using terminology taken from French literary criticism he makes a distinction between langue (language as translated) and parole (language as experienced in a given culture).

If this distinction is not recognised by partners involved in multicultural dealings, misunderstanding is bound to happen.

Pollard (1994) suggests that language was a significant factor in negotiations between UK and Kazakh managers where misunderstandings of words were traced to differences their contextual interpretation.

Japanese and British Managers

A business anecdote concerning a Japanese and a British manager who conduct a deal in English language illustrates this point. While the British manager goes through the contract clause by clause, setting out his conditions, the Japanese manager keeps saying 'yes'. By the time the British manager has reached the end of the text and conditions, he thinks he has clinched the deal, only to be told by his Japanese counterpart that he now has got to go back to his headquarters to discuss the matter with his boss. What the British manager understood by 'yes' was agreement with the clauses; what the Japanese manager meant by 'yes' was 'yes, I hear you, carry on, tell me more'.

There are of course other aspects of culture which manifest themselves in a negotiation situation.

As Hagen (1988) points out, foreign partners not only speak languages other than one's own, but also have a tendency, for cultural reasons, to think in different ways and have different priorities in the way in which they do business.

For example, some people prefer to conduct their business meetings with foreigners, initially at least, in a formal manner, and would be offended to be addressed by their first name; some might believe that the use of an informal style and first name would signal to the partners that they are trusted. Two partners from these different cultural backgrounds could easily misunderstand each other if they engaged in negotiations without a prior knowledge of one another's assumptions and values.

Take another example of cultural differences among business negotiators. In some cultures, people involved in business deals, would like to build up personal relationships first and establish the trustworthiness of their trade counterparts before going on to engage in business contracts and activities with them.

Kazakh and British Managers

This factor was particularly important in both Kazakhstan IJVs, the UK-based organizations both reported that significant amounts of time had to be devoted to building up relationships with local management and officials before any venture-related negotiations could take place.

Alternatively, in other cultures, business negotiators would prefer to get down to the nitty-gritty of the deals and contracts straightaway, relying heavily on the legal rights and obligations clauses included therein to safeguard their interests, which reflects business negotiation practice in the USA.

American and European managers

Altany (1989), comparing American business people with their European counterparts, points out that Americans often feel that the European practice of meticulously cultivating personal relationships with business associates slows the expedient conduct of business.

They argue that time is money, and the Europeans waste time. But to the Europeans in general, trust and long-term commitment - not legal contracts and short-term gains - are the heart and soul of a solid business relationship. And the European approach, slower though it is, usually leads to longer and stronger business alliances. The development of these long-term alliances can bring rich rewards for European business partners.

The concept of high-context and low-context is of relevance here. A feature of the high-context, personal style of doing business is that people spend time with clients and partners, become friends and in the process produce reciprocal feeling of obligation. Here there is a greater distinction between insiders and outsiders, between 'us' and 'them' than is found in low-context business cultures.

Relaxing with business clients during lunch and after work is crucial to building the close rapport that is absolutely necessary if one is to do business in a high context business culture; whereas this is not as common or necessary in low-context business (Hall, 1977; 1989; Hall and Hall, 1990).

The manner in which information exchange and communication are structured in negotiations and other business encounters can also reflect the high and low contexting. For example, high-context people, such as the Japanese, are rather slow getting to the point and do not expect to have to be very specific even when they do. They talk around the point. They think that intelligent human beings should be able to discover the point of a discourse from the context, which they are careful to provide. In contrast, the low-context people are fast getting to the point, tend to over-inform and are much more direct in delivering their message. (Hall, 1977; 1989).

American and German

Meyer's (1993) analysis of a group of American and German managers who were engaged in a joint project illustrates the difficulties and challenges that multicultural teams experience at the formative stages of their negotiations and cooperation.

Meyer’s study demonstrates that the Germans and Americans have divergent expectations about appropriate behaviors on at least three levels:

• the process of relationship and trust-building,
• the process of communication,
• and the management of meetings.

The German process of relationship-building is slow, drawn-out and interspersed with frequent 'tests' of the actual level of trust achieved. In contrast, the Americans, even if previously unfamiliar, begin a new relationship in a personable and friendly manner as each party is eager to invest the new relation with an up-front measure of good-will.

As regards communications, American negotiators perceive the German style as directness, even blunt, whereas the Germans complain about the chattiness and superficiality of their American counterparts and their tendency to engage in non-committal 'small talk'. This may reflect the ways in which verbal communication is viewed by the parties involved.

For the Germans, conversation is a channel for exchange of information and the distinction of right from wrong, true from false (Dahrendorf, 1967).

For the American the culturally defined purpose of conversation is more to cultivate social bounds between speakers.

In meetings, the Germans tend to follow a predetermined agenda rather rigidly, but the Americans view the agenda as a loose set of guidelines which can be deviated from freely as and if necessary.

American and Chinese

In a case study of an American multinational company, which is in the process of setting up a joint venture in China, Tayeb (1996b) observed further manifestations of cultural implications for negotiations.

For example, even though the negotiating team includes two members of Chinese origins who are fluent Mandarin speakers, there are still causes for frustration and tension. The negotiations are progressing at a very slow pace, a pace determined by the Chinese partners.

When the team first went to China, the expatriates from the parent company already posted there warned the team of what they might expect in this regard: As one of the team members pointed out, ‘The Chinese will move at the speed they want to move at, they probably don't have all that much in the way of concern for schedule. Time isn't of the essence, it's more the quality of the discussion or the quality of the exchange. And the faster that we try to go then the more it would cost us to do it. We would have to give up more and more and more until we're probably losing money on the deal’.

The partners started in March 1995 on negotiations in Beijing and months later they have still a long way to go.

Typically, when negotiators reach a certain position, the Chinese partners say they must now go back to the ministries that support them, and they will come back and say that, for instance, the deal was unacceptable, and the whole process starts all over again. Or they may change team members on their side because, for example, the government ministries do not feel they are doing as good a job as they might be. This means that the Scottish negotiators have to get their side of argument over to these new people.

Beyond the negotiation and setting up stages, another aspect of an organization for which sensitivity to national culture is of utmost importance is the management of human resources. At this stage, national cultures become increasingly relevant to international joint ventures, because of their joint management involvement. International joint ventures bring together two or more sets of employees whose national culture gives them fundamentally different views on what constitutes a desirable management style or appropriate organizational hierarchy (Norburn and Schoenberg, 1994).

As Schuler et al (1993) point out, "[National culture is important because of its] impact upon acceptable, legitimate and feasible practices and behaviors... Acceptable in terms of "can we pay workers different rates, and thereby differentiate them, according to performance"; legitimate in terms of "are there any legal statutes prohibiting us from not paying workers overtime for work on Saturday and Sunday"; feasible in terms of "while the society is hierarchical, authoritarian and paternalistic, can we empower the workforce to make workplace decisions in order to facilitate our quality strategy? "

Various comparative studies have demonstrated that certain cultural attitudes and values have significant implications for organizations and the ways in which they are managed (see for instance, McClelland, 1961, Crozier, 1964; Hofstede, 1980, Hofstede and Bond, 1984, Tayeb, 1988, Hall and Hall, 1990; Meek and Song, 1993). These values and attitudes include individualism, collectivism, attitudes to power and authority, achievement motivation, attitudes to conflict and harmony, tolerance of ambiguity and uncertainty, interpersonal trust, and many more.

The Table below, illustrates some examples of the ways in which organizations could be influenced by work-related cultural traits.

Culture-specific aspects of organization

From: Tayeb, 1996

In an IJV if employees coming from partners’ country of origins have differing levels and degrees of the work-related attitudes and values listed in column 3, there is bound to be tension caused by their implications for columns 2 and 1. Schoenberg et al.'s (1995) research findings demonstrate the kind of complexities involved.

Anglo-French joint ventures

Schoenberg and his colleagues studied four major Anglo-French joint ventures from the chemicals and engineering sectors which formed between 1986 and 1989. The researchers sought to establish the major organizational difficulties and opportunities the partners experienced during the formation and management of the partnership, and the management practices that could overcome and make most of these differences.

They compared the two nations on two of Hofstede's (1980) dimensions, power distance and uncertainty avoidance. They argued that the former would determine the views of each nationality on such issues as the preferred degree of centralization and the appropriate levels for decision making whilst the latter would guide the preferences for the number of levels within the organization and the rigidity of the organizational systems.

In Hofstede's study the French scored higher on both power distance and uncertainty avoidance than did the British. These differences of scores, Schoenberg et al. argued, was reflected in the management styles of the managers in the joint ventures studied.

The natural French management style was widely perceived as being more autocratic, with decision-making authority clearly concentrated at top management levels. In contrast, British executives were accustomed to leave more discretion to middle management levels, with strategic information more widely shared. The two national management styles failed to allocate decision-making discretion at the same organizational level.

British managers would assume that the purpose of a meeting was to arrive at a consensus view and then act upon that view. To French managers the purpose of a meeting was simply to clarify the arguments they would later put forward to their bosses for consideration.

Remuneration system and status of employees were another point of difference. For the French, hierarchical position and payment were dependent upon the educational qualifications of the incumbent.

For the British they were both based on the content of the job itself. These two different approaches to remuneration had caused some serious problems.

Following the French approach would mean that for similar jobs in the French parent company significant differences existed between the salary of an ingenieur and a technicien. In comparison, remuneration in the British partner tended to be based more exclusively upon the job actually done.

In the two of the alliances where technical problems had to be solved by bi-national teams, the underlying scientific approaches could be seen to diverge. The French favored the use of precise theoretical calculations to make sure in advance that a system would work, and would enjoy engineering sophisticated and very general solutions. The British were satisfied with a simpler system that proved empirically to work.

Japanese joint-ventures in China

This kind of cultural clash is a manifestation of the extent to which we all take our home-grown assumptions for granted and expect others to know them and to behave accordingly. Japanese joint-ventures in China are an interesting case in point.

Yager et al. (1994), in their study of foreign joint ventures in China, found that Japanese managers were almost baffled by Chinese workers' display of a lack of pride in and identity with their employer organizations. An examination of some of Chinese cultural characteristics shows that the underlying values of Chinese workers' attitudes to their workplace are quite different from those of their Japanese counterparts.

Culturally, China represents a "high-context" (Hall, 1959) culture, in which meanings often derive from relationships, authority and context. In China conceptions of self, morality, time, causality and probability may differ significantly from conceptions in many other countries (Redding, 1990). Indeed, the persistence of personalized loyalty (i.e. loyalty to a particular individual) in Chinese culture may impede development of organizational loyalty (Castaldi and Soerjanto, 1988). As a consequence, a sense of personal contribution to organisational objectives, so evident for example in the Japanese model of business operation, is not present in Chinese organizations (Yager et al. (1994).

In contrast, Japanese managers come from a culture where, among other things, employees are known for their high degree of commitment to their workplace, and for including it in their in-group. Consequently, the Japanese managers who had taken such sentiments and attitudes for granted found their absence in Chinese work environment puzzling.

There are also other aspects of Chinese culture which might cause some difficulties for joint ventures operating in China.

Traditionally, Chinese personal networking has been important, if not essential, to success, using extended family and other developed relationships and connections to gain cooperation and to get things done. The success of Chinese networking skill in building the effectiveness of small businesses, their interpersonal relationships, loyalties, and a system of mutual support do not seem to carry over to larger organizations, including joint ventures with foreigners. This had implications for discipline. Industrial discipline, a concept implying not only that workers follow a regimen in their jobs, but also the will of supervisors to exercise sanctions in controlling worker behavior, was non existent among Chinese workers. A sense of responsibility to the employer organization, consistency in work performance and follow-through also seemed to be unusual. There was a pervasive need to build identity to the enterprise. Although some joint venture managers reported initial resentment among workers for strict discipline and enforcement of work rules, companies that had adopted clear, enforceable expectations coupled with production bonuses and visible rewards seemed to be more successful (Yager et a., 1994).

An awareness of cultural differences between partners and respect for these could of course help ease complexities and tensions which might arise in an IJV, and thereby increase the chances of the joint venture’s success. But this may be easier said than done. Faulkner’s (1995) study provides a revealing example.

Faulkner found that mutual trust, sensitivity to company culture, and sensitivity to national culture were among the top five attitudes which have a strong association with alliance success. Nine out of ten joint ventures surveyed claimed to have positive attitudes on both or all sides towards national and corporate cultural differences. However, the situation was not always totally trouble-free.

British and Japanese JV

For example, in ICI Pharma, a joint venture of British and Japanese parentage, relationship seems to have met with culture problems. There seems to be, at least on the ICI side, a fundamental difficulty in moving mentally out of the strong ICI culture, into a sensitive understanding of partners from other cultures. The ICI Pharma joint venture has been in existence since 1972, yet ICI can still say: "One of the things that still holds us back in Japan is our lack of understanding of Japanese culture. Relationships are very important in Japan, and we are much less certain about what might spoil a relationship than we would be with a European or US company"

In another joint venture, the Courtaulds/Nippon Paint joint venture, attitude problems also seem to have placed a brake on the development of the relationship. The venture started off well because the people setting it up were sensitive to their cultural differences: "... then there were people changes, and the older people who knew Nippon very well retired, and the younger people came in and didn't understand the Japanese culture, and way of doing things"

The inherent difficulties are involved in adopting and maintaining positive cooperative attitudes in international strategic alliances.

This internal conflict only emphasizes the apparent importance of the attitude question in sustaining a positive alliance relationship (Faulkner, 1995).

In addition to national cultural differences, differences in corporate cultures of the partners involved also play a part in the joint venture's human resource management. Corporate cultures embody ways of doing things, such as power structures and control systems, management and leadership styles, and attitudes to investment and risks. Variations in organizational cultures across the parent companies and within the venture might constitute a major impediment to effective implementation and subsequent operations.

British and German partners

The partnership between GEC and Siemens, for instance, has been reported to be marked by contrasts between British firm's decentralized and short-term approach and the centralized longer-term style of the German partner (Financial Times, 3 July 1990).

British and Italian parent companies

One of the international joint ventures among Faulkner's (1995) sample referred to earlier provides an interesting example here. This joint venture, EVC, was set up by its British and Italian parent companies, ICI and Enichem. EVC faced two very strong cultures. ICI have a strong internal culture based on teamwork and debate, whilst Enichem are much more functionally driven. The production director at Enichem for example gets on with production, and is somewhat loath to express opinion related to other areas. In ICI, the concept of Board Member is more broadly interpreted. These different cultures could not fuse easily in EVC, and the chief executive officer had some trouble over clashing cultures as a result.

The issue of organizational culture is also relevant in the context of the formation of an IJV. If the company is created by the partners as a greenfield site, the cultural clash and tension thus ensued might be comparatively less than when the venture is formed by a partial take-over of an existing firm by an outside partner. In this latter case, there are old habits and ways of doing things which might not be appropriate for the new entity and which might prove difficult to unlearn. An example of this was a company studied by Tayeb (1994). Hurricane (pseudonym), a Japanese multinational, had been attracted to ‘favourable’ investment opportunities in south west of Britain.

Japanese multinational looks toward investment opportunities in Britain

Hurricane had chosen this part of the country as the site for its operation primarily because of its high unemployment rate and because it was designated as a development zone, and therefore there were financial incentives for the company to have an operation there. The company first became involved in an existing British-owned electronics firm as partners in a joint venture, because the firm was in financial crisis and welcomed the infusion of capital from their new partners. However, the Japanese partners later met with resistance from the local managers to the technical, managerial and structural reforms which they attempted to implement.

The Japanese managers wanted to produce quality products, with minimum costs, but they had some difficulties in getting the employees to realize the merits of new methods of quality control, e.g. built-in control in the production process, and cost saving practices, such as getting their raw materials in time to go to the production line, (the so-called just-in-time process), thereby eliminating the need for expensive warehouses.

The 'old' company managers and employees were worried about the uncertainties and confusion which could be caused by the change over, and therefore resisted the introduction of new ideas and a new management style. For instance, the unions' resistance to some of the proposed changes rested on fears that the changes might reduce their power or challenge their traditional territorial claims over various jobs and skills. Also, as in some other British firms, a culture of 'them and us' was prevalent within the company which had created a division between the management and employees. This was regarded by the 'new' management team as a serious obstacle to the successful implementation of their proposed policies.

After a few months of negotiations, the Japanese partners proposed either to buy out all the shares or to pull out completely. The former option was accepted by the British managers, and the company became wholly owned by Hurricane Corporation. The Japanese now had the freedom to tackle the situation largely their own way and fundamental changes were soon under way (Tayeb, 1994).

Scottish company sets up an IJV in China

The problem of old habits carried over to the new venture is a concern of the Scottish company which is in the process of setting up an IJV in China. Chinese workers have lived and worked within a Communist structure, which has been proven to be flawed in terms of efficiency.

A standard joke going around among the Scottish Managers is ‘How many Chinamen does it take to change a light bulb?’ As one of the negotiators recalled the actual experience he had, the answer is four.

“We needed a light bulb changing in the house and we had four people coming to change it, one to go up the ladder to put it in, one to hand the bulb up to him, one to hold the ladder and one to supervise, you know. So, they do employ everybody but not everybody is all that productive”.

The challenge facing the company as the managers see it is not to change the cultural attitudes and values of their Chinese workforce, but to help them unlearn unproductive working practices, and replace them with those which are more conducive to greater efficiency.

In addition, what the company is aiming for is to recruit young employees who are basically more adaptable, and who have not been subject to traditional working practices. They will then train these employees to work the Scottish partner way. The belief is that the Chinese would not have any problem with this approach, because they need to be competitive in the world market, so they will be keen to learn the way their foreign partners do things and maybe within 20 or 30 years they will be doing it even better.

German-Czech IJVs

In their analysis of two German-Czech IJVs, Pollard et al (1996) argued that both organizational and professional cultures could affect the operation of a joint venture company. In one case, the transfer of technology from a parent company was successful only because that parent was allowed to dominate the specification and implementation of new systems. Co-operation between the firms would not have worked because of a skills disparity between German and Czech staff.

National culture and other institutions of the country in which an IJV is situated play a significant part in the actual form that the organization and management style of the joint venture will take. In other words, the host country forms the immediate external environment of the IJV with which it has to interact and to whose pressures and expectations it has to respond. Companies undertaking expansion through IJVs need to understand the significant elements of local country culture, especially in terms of initial negotiations and partner selection.

As far as human resource management is concerned, the IJV’s policies and practices are generally decided by its senior managers, with or without consultation with their employees. But these policies are adopted and implemented having regards to the national context within which the company operates. The political ideology of the government of the day (and the political regime as a whole), the economic conditions of the country (e.g. level of unemployment), the power of trade unions (or lack of it), and the socio-cultural characteristics of employees and managers (and the general public), are examples of a host country’s influences on an IJV’s HRM policies. Moreover, the host country's membership of global and regional pacts and agreements can also have a significant bearing on the organization's HRM strategies. The Social Chapter of the Maastricht Treaty of European Union is an example of this kind.

Major institutions which serve as the channels of influence on an IJV generally fall within six broad categories: legal system, political culture, industrial relation culture, level of economic advancement, membership of global and regional agreements, and the national culture as a whole.

In most countries influences of these institutions on a company’s human resource management are incorporated in the rules and regulations governing employee-management relations, some more explicitly than others. These rules and regulations can either be related to the employees' individual rights, such as equal opportunity, job security, wage levels, work schedules, work injuries and post-employment economic security. Or they can be related to the employees' collective rights, such as unionization, bargaining, the resolution of contract disputes, and participative decision making.

In some countries, there are further rules and regulations which apply specifically to foreign companies operating within their territories, over and above those which apply to all firms. For instance, foreign firms may be required to include local people in their top management teams, and to build or contribute to the construction of local amenities such as houses, hospitals, schools and similar facilities for their employees.

Because of these influences it is argued that the initial decisions taken by the partners in an IJV as to the location of the company would have significant implications for its subsequent management style and indeed its success and survival.

The figure below summarizes the relationship between an IJV and its host country.

Host country influences on an IJV’s human resource management

The Collapse of the USSR

The break up of the former USSR into independent republics illustrates another case of some potentially significant implications of macro-level factors for human resource management at the miro-level.

In Kazakhistan, for instance, under the USSR culture, women could and did achieve high positions in business. Now that the country is independent, its old predominantly patriarchal culture, which lay dormant under the Soviet rule, is enjoying a revival, replacing the 'Russian Communist' culture. As a result, the perception of the role of women in the society and at workplace is changing. In the short-term at least it is unlikely that women will have the same opportunities as they had before (Pollard, 1994). Furthermore, the reviving Kazakh culture places a great emphasis on age and seniority and prescribes 'proper' junior-senior relationships, stemming from its nomadic traditions (Rywkin, 1982). This could have repercussions for organizational hierarchy, authority structure, and promotion and compensation policies, among others.

In Conclusion,international joint ventures face additional challenges over and above those experienced by their single-culture owned counterparts because of their culturally mixed ownership. The tensions and dynamics caused by the mixed parentage manifest themselves at the negotiation stage for all types of cross-border alliances, but are specifically acute for human resource management in joint ventures. Management styles have their roots in different cultural assumptions of partners in a joint venture.

It was also pointed out that major cultural values and attitudes, such as attitude to power, tolerance of ambiguity, individualism, collectivism, and interpersonal trust, are relevant to HRM in IJVs.

The location of an IJV can also exert influences on its internal organization and management style through for example rules and regulations governing employment relations.