10 THESES ON THE SUCCESSFUL MANAGEMENT

OF INTERNATIONAL JOINT VENTURES

An Empirical Study with Austrian-Brazilian Joint
Ventures

by JOCHEN PENKER

Introduction:

The underlying study of this paper intends to develop a multidimensional approach to

joint venture success in Brazil, one of the largest and most attractive emerging
markets in the world. International joint ventures are complex inter-partner
relationships depending on personal and intercultural understanding of the partners,
the strategic harmony of the goals to be achieved, the resource fit, and last but not
least the trust between the partners to survive and prosper. Previous research has
focused on various issues concerning international joint ventures implementation and
development, including planning, managing and controlling processes. Little
attention, however, has been paid to the Latin American market with its very unique
characteristics. The underlying study aims to identify the key success factors of
Austro-Brazilian joint ventures by seeking answers to the following questions: Which
critical internal and external factors influence this kind of cooperation? What are the
managers’ perceptions, attitudes, and evaluations with respect to the performance of
their joint ventures? The study is based on empirical research including both
partners’ perspectives, i.e. Austrian and Brazilian managers. It involves the full range
of Austrian equity joint ventures in Brazil. This paper briefly describes the underlying
motives of Austrian managers for establishing a joint venture in Brazil, presents the
major findings of the empirical study "Keys to Joint Ventures Success in Brazil"
without going into details and concludes with "10 theses on the successful
management of international joint ventures".

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Motives for establishing a joint venture:

The cooperation between two or more partners in the form of a joint venture
represents an attractive opportunity for Austrian companies to get better and faster
access to foreign markets. Table 1 depicts the motives of Austrian managers for
establishing a joint venture with a Brazilian partner. "Increasing international
competitiveness, the partner's knowledge about the market, customer requirements
und production conditions, as well as "better and faster access to the Brazilian
market" are seen as crucial by the managers. In addition, the "overcoming of barriers
to trade" and the "exchange of know-how" are mentioned as relevant factors
influencing the decision for a joint venture. A high level of existing export activities
between the Austrian and Brazilian company is not seen as an immediate motive,
neither the "cooperation with a competitor", the "search for appropriate property/real
estate" or "low-priced property/real estate".

Ranking Motives for establishing a joint venture Mean

(1 = unimportant, 5 = very important)

1 Increasing international competitiveness 4,0

2 Partner's knowledge about market, customer needs 3,9
and production conditions
3 (Faster) access to Brazilian market 3,6
4 Overcoming barriers to trade 3,4
5 Exchange of know-how 3,1
6 Identifying of additional supply sources 2,8
6 Minimizing risk 2,8
8 Higher acceptance of population 2,7
9 Lacking knowledge about host country 2,3
9 Low labor costs 2,3
9 Imitation of competitor's behavior 2,3
12 Meeting the laws and political framework of host 2,1
country
12 Gaining prestige 2,1
14 Negotiating with multi-level bureaucracies 2,0

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14 Extending the product- and services assortment 2,0
16 Investment promotion 1,8
17 Restructuring of business units 1,7
18 Access to resources (in specific to new technologies) 1,7
19 Cost degression (through economies of scale) 1,7
20 Extension of cash flow (with products which are 1,5
advanced in the product life cycle)
21 Low-priced real estate/property 1,5
22 Search for appropriate real estate 1,4
23 Cooperation with competitors 1,4
24 High level of delivery to partner 1,2

Table 1: Motives of Austrian Manager for establishing a joint venture in Brazil

Overall, the managers underlined the importance of "being present" in the Brazilian
market, the maximization of profits, the pressure through global customers (same
standards on single world markets), the establishment of a local production and a
higher net value added as their main reasons/motives for establishing their joint
ventures in Brazil.

Keys to joint ventures success in Brazil (summary of the major findings of the
empirical study with Austrian and Brazilian managers)

The following chapter summarizes the key issues mentioned by the Austrian and
Brazilian managers and offers key recommendations for business people who plan to
establish a joint venture with a Brazilian partner. The success factor "trust" between
the joint venture partners is perceived as the most critical factor influencing the
success of a joint venture (by Austrian as well as Brazilian managers). "Trust"
stabilizes inter-organizational relationships, reduces the need for complex contractual
agreements, reduces behavioral uncertainties and at the same time creates certainty
in doing business with the partner and enables a more open exchange of information.
Inter- and intra-organizational trust is primarily encouraged through individual
attributes such as reliability and consistent behavior, respect, openness, honesty, as
well as expertise and showing of "good will" through commitment and finally through

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establishing a broad and open basis of information. The saying "trust is good, control
is better" hold also true in international joint venture management. The domestic
company should have a detailed look into the history of the potential foreign partner
before the strategic decision is made. The application of a comprehensive control
mechanism [e.g. compatibility of controlling systems, recruitment of trustworthy
leaders (known by the domestic headquarter), the presence of reliable Austrian
employees (expatriates) in Brazil], is of great importance, not only before a joint
venture is established.

The basis factor "understanding" encompasses a good mutual relationship between

the partners (on an individual/intercultural level), the maintenance of a constant
communication and a continuous information exchange as major elements of a
successful cooperation. The verbal communication creates a common ground for
understanding. If a partner makes a decision which affects the joint venture, he/she
has to communicate this to the other partner, because he/she could worry about
disadvantages for him/herself. Only if both/all partners are convinced, that they are
able to win through the joint venture, the project can lead to a success. This means,
a win-win situation has to be created in which both/all partners benefit from the
cooperation. By which measures can the intra- and interorganizational
communication be encouraged and how can the effective cooperation between
employees of the headquarters and those of the joint venture be fostered through
better communication? First, employees of both (or more) headquarters need to be
integrated into teams, so they are able to identify themselves with the new entity (the
joint venture). Decisions and changes must be openly communicated, not only within
the companies but also to all stakeholders. It is crucial to nominate employees within
the joint venture who are responsible for the communication between the Austrian
and the Brazilian company and report to the headquarters. According to the
interviewees, the "language barrier" plays a very critical role in this area. Apart from
the main areas Sao Paulo, Rio de Janeiro and Belo Horizonte the Austrian manager
should not expect English- or German-speaking partners. An important key to
success is the selection of an appropriate joint venture manager with excellent
communication skills and a profound knowledge of the Portuguese language.

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The Brazilian managers and their Austrian counterparts agree with the fact that
executives (joint venture managers) and local employees are the primary pillars of a
successful international cooperation. They argue: A good combination of experience,
professionalism, expertise, flexibility, the capability to motivate, social and cultural
competence distinguishes the successful joint venture manager from the
unsuccessful. Qualified and well-trained employees contribute to the overall joint
venture success. So, personnel management is an important issue, especially in
Brazil, and should not be underestimated by the headquarters. It is essential to deal
with personnel policy issues from the very beginning, that is to say, a clear alignment
of the joint venture's personnel strategy and the coordination of the partners'
personnel policies can contribute to the long-term success of the joint venture.

Brazilian and Austrian interviewees identified "the analysis of the economic, legal and
political framework", an "in-depth analysis of the Brazilian market" and of the
potential partner" (due diligence, history of the company, suppliers) as essential
parameters to success.

Moreover, interviewees agreed on the high importance of cultural understanding and

the reduction of barriers to mentality (on the national and the organizational level) as
essential aspects. Building strong "personal relationships" (friendship and trust) with
the locals is only possible if the Austrian manager learns to understand the Brazilian
mentality and is fluent in Portuguese. Interpersonal Relationships in Brazil are
affected by honest and authentic amicability, empathy, mutual respect and the
emphasis on harmony. The Brazilian tends to avoid conflict situations and
abominates loud disputations. He is adored by the Austrian managers due to his
improvisation talent and adaptability to new situations, which enables him to
comprehend and solve problems very quickly.

The interviewees identified cultural differences within their joint ventures e.g. in the
product development process, in the way of solving problems or in the management
style. The Austrian way of thinking is - due to the historical setting of the country -
more based on long-term considerations and more rational while the Brazilians tend
to think and act more emotionally. If managers don't consider these cultural
differences, they take the risk of a failure. The behavior of foreign managers

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sometimes reminds their Brazilian counterparts to the colonial times. The Brazilian
market is worked with a specific product or service, European technology, know-how
and management techniques without analyzing the local cultural setting and social
framework in advance. However, the compatibility of national cultures as well as
cooperate cultures are essential. The stability of the cooperation can be put at risk by
too divergent cultures.
As joint ventures in Brazil are not regulated by law, it is crucial to pay special
attention to the right formulation of the joint venture contract, in specific with regard to
the mutual rights and responsibilities. While negotiating the contract, "patience"
represents an important key to success. After a clear common strategy has been
defined and the business goals, mutual rights and responsibilities have been covered
in the contract, it should not be needed any more during the formation stage and
management stage.
The empirical findings confirm the underlying theory: The right timing is critical to the
success of international cooperations. This is also relevant to Austrian-Brazilian joint
ventures. Due to its specific macroeconomic and legal framework, the "best moment"
for a market entry in Brazil is quite hard to assess. When a joint venture is
established, a certain phase of consolidation - depending on the specific branch of
industry - needs to be included into the business plan. During this phase, profits are
not yet to be expected. The duration of the formation phase depends on the
compatibility and the strategic focus of the participating enterprises. Compatibility, for
instance, can be measured by the size of the participating enterprise, the
management systems and the "cultural fit". Only when the partner firms agree on a
common policy within the joint venture, when a management style is found which is
acceptable to all, and only when the value systems of both/all partners within the joint
venture are adjusted, the phase of formation can be regarded as "accomplished".
In summary it may be said that a "joint venture" represents a very attractive
instrument for internationalization to the Brazilian market, because, on the one hand,
enterprises can benefit from economic chances (e.g. gaining international
competitiveness, quick(er) market entry and overcoming barriers to trade) while
saving scarce resources. On the other hand, the partner's expertise and knowledge
about the Brazilian market, customer requirements and production conditions can be
assumed and applied. Joint ventures are of special interest to Austrian companies if
they are able to bring in a high tech product and the Brazilian partners contribute with

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the local management expertise and, as a consequence, accelerate the market entry.
The economic advantages of such a cooperation, however, can only be fully gained
by considering the identified key success factors and by conducting a holistic in-
depth analysis of the specific joint venture situation.

10 Theses: Success of international joint ventures:

Thesis 1: The trust between its partners keeps a joint venture

alive.
Thesis 2: The understanding of the partner and the cultural setting
of the host country reduces barriers to mentality and
improves the access to the people.
Thesis 3: The exchange of know-how and a good support of the
headquarters (e.g. through exchange of employees) are
the main pillars of a joint venture
Thesis 4: Networking, permanent contact and communication
between the partners and an appropriate reporting
system promotes the success of a joint venture.
Thesis 5: The formulation of the cooperation contract requires
high attention (in specific regarding the mutual rights
and responsibilities).
Thesis 6: The idea of a joint venture should be to keep the
partnership alive in the long-run. A long-term concept as
well as an in-depth market-, partner- and competitor
analysis significantly influence the success of the
cooperation.
Thesis 7: Success or failure of a joint venture is determined by the
personal relationship between the partners.
Thesis 8: While negotiating the cooperation contract, "patience"
represents an important key to success.
Thesis 9: It is relevant that common objectives are defined from
the very beginning and are included in the joint venture
contract.
Thesis 10: Leaders who are able to communicate well and are
frank with the local employees, who are flexible and
capable to motivate, who are experienced and possess
a high level of social competence and who are able to
deal with different cultures will prevail in the long-run.

Contact:
Dr. Jochen Penker
Tel. +43/650/7110054
E-mail: jochen.penker@wu-wien.ac.at