GODAVARI’S FOUNDATION

GODAVARI INSTITUTE OF MANAGEMENT AND RESEARCH,

JALGAON

406 C- INTERNATIONAL HUMAN RESOURCE MANAGEMENT

SEMESTER IV

Dr. ANUBHUTI P. SHINDE

406 C- International Human Resource Management

Dr. Anubhuti Shinde
Godavari Institute of Management and Research, Jalgaon
 Chapter 3

International Joint Ventures

The joint venture can be a contractual arrangement between the two joint venture partners in which the basis
of the understanding and the governing terms are contained in a written agreement. More commonly today,
the parties may create an equity joint venture by forming an entity, owned, in agreed proportions, by the
respective parties or specially funded subsidiaries, or by purchasing equity in an existing entity. The new
entity can take the form of a limited liability company, a corporation or one of the many other forms of entity
available under applicable national, state or local law.

Joint Venture is a business preparation in which more than two organizations or parties share the ownership,
expense, return of investments, profit, governance, etc. To gain a positive synergy from their competitors, various
organizations expand either by infusing more capital or by the medium of Joint Ventures with organizations.

Characteristics of a Joint Venture

1. Creates Synergy

A joint venture is entered between two or more parties to extract the qualities of each other. One company may
possess a special characteristic which another company might lack with. Similarly, the other company has some
advantage which another company cannot achieve. These two companies can enter into a joint venture to
generate synergies between them for a greater good. These companies can work on economies of large scale to
give cost advantage.

2. Risk and Rewards can be shared

In a typical joint venture agreement between two or more organization, may be of the same country or different
countries, there are many diversifications in culture, technology, geographical advantage and disadvantage, target
audience and many more factors to overcome. So the risks and rewards pertaining to the activity for which the
joint venture is agreed upon can be shared between the parties as decided and entered into the legal agreement.

3. No Separate Laws

As for joint venture, there is no separate governing body which regulates the activities of the joint venture. Once
they are into a corporate structure, then the Ministry of Corporate Affairs in association with Registrar of
Companies keep a check on companies. Apart from that, there is no separate law for governing joint ventures.

406 C- International Human Resource Management

Dr. Anubhuti Shinde
Godavari Institute of Management and Research, Jalgaon
Advantages of Joint Venture

1. Economies of Scale
Joint Venture helps the organizations to scale up with their limited capacity. The strength of one organization can
be utilized by the other. This gives the competitive advantage to both the organizations to generate economies of
scalability.

2. Access to New Markets and Distribution Networks

When one organization enters into joint venture with another organization, it opens a vast market which has a
potential to grow and develop. For example, when an organization of United States of America enters into a joint
venture with another organization based at India, then the company of United States has an advantage of
accessing vast Indian markets with various variants of paying capacity and diversification of choice.

3. Innovation
Joint ventures give an added advantage to upgrading the products and services with respect to technology.
Marketing can be done with various innovative platforms and technological up gradation helps in making good
products at efficient cost. International companies can come up with new ideas and technology to reduce cost and
provide better quality products.

4. Low Cost of Production

When two or more companies join hands together, the main motive is to provide the products at a most efficient
price. And this can be done when the cost of production can be reduced or cost of services can be managed. A
genuine joint venture aims at this only to provide best products and services to its consumers.

5. Brand Name
A separate brand name can be created for the Joint Venture. This helps in giving a distinctive look and
recognition to the brand. When two parties enter into a joint venture, then goodwill of one company which is
already established in the market can be utilized by another organization for gaining a competitive advantage over
other players in the market.
For example, a big brand of Europe enters into a joint venture with an Indian company will give a synergic
advantage as the brand is already established across the globe.

6. Access to Technology
Technology is an attractive reason for organizations to enter into a joint venture. Advanced technology with one
organization to produce superior quality of products saves a lot of time, energy, and resources. Without the
further investment of huge amount again to create a technology which is already in existence, the access to same
technology can be done only when companies enter into joint venture and give a competitive advantage.

406 C- International Human Resource Management

Dr. Anubhuti Shinde
Godavari Institute of Management and Research, Jalgaon
Disadvantages of a Joint Venture

1. Vague objectives

The objectives of a joint venture are not 100 percent clear and rarely communicated clearly to all people
involved.

2. Flexibility can be restricted

There are times when flexibility is restricted in a joint venture. When that happens, participants have to focus
on the joint venture, and their individual businesses suffer in the process.

3. There is no such thing as an equal involvement.

An equal pay may be possible, but it is extremely unlikely for all the companies working together to share the
same involvement and responsibilities.

For example, Company A is working on the production process, whereas Company B is responsible for the
production, and Company C is in charge of planning and implementing market strategies. Since Company A
is not directly involved in the production and promotion process, the pressure is on the latter companies. It
will also affect individual businesses.

4. Great imbalance

Because different companies are working together, there is a great imbalance of expertise, assets, and
investment. This can have a negative impact on the effectiveness of the joint venture.

5. Clash of cultures

A clash of cultures and management styles may result in poor co-operation and integration. People with
different beliefs, tastes, and preferences can get in the way big time if left unchecked.

6. Limited outside opportunities

It is very common for joint venture contracts to restrict outside activities of participant companies while
working on a venture project. You need to make sure you understand what you are getting into if you don’t
want to negatively impact your entire business.

7. A lot of research and planning are necessary

The success of a joint venture highly depends on thorough research and analysis of the objectives.

10. Lack of clear communication

406 C- International Human Resource Management

Dr. Anubhuti Shinde
Godavari Institute of Management and Research, Jalgaon
As a joint venture involves different companies from different horizons with different goals, there is often a
severe lack of communication between partners.

11. Unreliable partners

Because of the separate nature of a joint venture, it is possible that the partners do not devote 100% of their
attention to the project and become unreliable.

Motives for Merger and Acquisition:

There are many motivations that lead to the formation of a JV (joint venture). They include:

 Risk sharing – Risk sharing is a common reason to form a JV, particularly, in highly capital intensive
industries and in industries where the high costs of product development equal a high likelihood of failure
of any particular product.
 Economies of scale – If an industry has high fixed costs, a JV with a larger company can provide the
economies of scale necessary to compete globally and can be an effective way by which two companies
can pool resources and achieve critical mass.
 Market access – For companies that lack a basic understanding of customers and the relationship /
infrastructure to distribute their products to customers, forming a JV with the right partner can provide
instant access to established, efficient and effective distribution channels and receptive customer bases.
This is important to a company because creating new distribution channels and identifying new customer
bases can be extremely difficult, time-consuming and expensive activities.
 Geographical constraints – When there is an attractive business opportunity in a foreign market,
partnering with a local company is attractive to a foreign company because penetrating a foreign market
can be difficult both because of a lack of experience in such market and local barriers to foreign-owned or
foreign-controlled companies.
 Funding constraints – When a company is confronted with high up-front development costs, finding the
right JV can provide necessary financing and credibility with third parties.
 Acquisition barriers – When a company wants to acquire another but cannot due to cost, size,
or geographical restrictions or legal barriers, teaming up with a company in a JV is an attractive option.
The JV is substantially less costly and thus less risky than complete acquisitions, and is sometimes used as
a first step to a complete acquisition with the JV. Such an arrangement allows the purchaser the flexibility
to cut its losses if the investment proves less fruitful than anticipated or to acquire the remainder of the
company under certain circumstances.

HRM Factors in IJV

There are many organization/HR issues that unfold as the IJV gets set up, including:
• The assignment of managers
406 C- International Human Resource Management
Dr. Anubhuti Shinde
Godavari Institute of Management and Research, Jalgaon
 • Managers' time-spending patterns
• Top management evaluation
• Managing loyalty issues
• Career and benefits planning

Assignment of managers- Each partner may place differing priorities on the joint venture; therefore, a partner
may assign relatively weak management resources to the venture. These managerial assignments should
reflect equal quality, particularly on the attribute of absorptive capacity, to help ensure an equal capacity to
learn and transfer knowledge to the parents. Balance should also be evident in the number and importance of
the managerial assignments made by both parents. This balance should also reflect the input and views of the
IJV's top management team.
Managers' time-spending patterns- The IJV has to carry out a set of operating duties simultaneously with its
development of new strategies. This raises the issue of the appropriate emphasis to give to operating tasks and
strategic tasks; sufficient human resources must be allocated for both. The situation is similar to that of an
independent business organization: the IJV must be able to draw sufficient human resources from the
operating mode to further develop its strategy. If the parent organizations place strong demands for short-term
results on the IJV, this may leave it with insufficient resources to staff for strategic self-renewal.

Top management evaluation - Deciding how to evaluate IJV managers is another major challenge. It has been
claimed that several joint ventures have failed because of inappropriate staffing.

Managing loyalty issues Parents and the IJV need to be sensitive to the potential need for dual loyalties. For
short-term expatriate assignments the potential may be moot, but for the longer-term expatriate, parents may
have to expect, even desire, to have their employees develop dual loyalties. Dual loyalties may help facilitate
the transfer and sharing of knowledge, because the employees can be trusted by the parents and the IJV itself.

Career and benefits planning It has been reported that more than 50 per cent of expatriates felt their overseas
assignments were either immaterial or detrimental to their careers. The motivation of executives assigned to
an IJV can be enhanced by the creation of a clear linkage between the assignment and an assignee's future
career. Some assurance of job security may be needed to offset perceived risks. As with any overseas
assignment, assignment to a joint venture may make the manager's future career appear uncertain. If the
parent company has not thought through this issue, this uncertainty may be justified. Thus, parent
organizations should offer career planning to counter the ambiguity and risks associated with an IJV
assignment, and to limit the potential for unsatisfying repatriation experiences.

1. Getting involved early -The human resource department should be involved in the formation of the strategic
alliance from the early planning stages. In a dialogue with the appropriate line departments, HR staff should
assume responsibility for the development of a thorough organizational learning strategy.

406 C- International Human Resource Management

Dr. Anubhuti Shinde
Godavari Institute of Management and Research, Jalgaon
 2. Building learning into the partnership agreement -In order to maintain a long-term symmetry in the
distribution of benefits from the partnership, both parties have to learn simultaneously. The process of parallel
learning can and should be made explicit.

3. Communicating strategic intent- As a part of its responsibility for corporate communications, HR should
co-operate with operational managers to assure that the strategic intent with respect to the partnership is
adequately communicated to the employees. Training programmes should be developed to prepare managers
to deal effectively with the ambiguity and complexity of strategic alliances.

4 Maintaining HR input into the partnership -The control of the HR department in joint ventures should not
be bargained away, as it is within the boundaries of such an entity that much of the learning occurs.

5. Staffing to learn -The accumulation of invisible assets should be the key principle guiding the staffing
strategy. Staffing and development plans should be established to cover the existing blind spots. Such an
approach may require a considerable investment in the development of core competencies within the parent
firm through a carefully calibrated transfer policy.

7. Using training to stimulate the learning process Three kinds of training activities can create a better
climate for learning. First, in internal training, managers should be made aware of the subtleties involved in
managing collaboration and competition at the same time. Second, open communication and trust within the
partnership is essential for the smooth transfer of know-how. Finally, any training programme geared to the
acquisition of a specific competence should be, in principle, reciprocal. This diminishes the incentives for
opportunistic behavior.

Role & impact of Culture in International Joint Venture

According to the definition, IJV implies partnerships between independent and different firms. This
partnership or collaboration is directly affected by the culture at the national and the organizational level.
National culture and other institutions of the country in which IJV is situated play a significant role in
influencing the organization and the management style of the joint venture. Each partner in the joint venture
brings its own culture and if the cultures are not compatible they will really make the joint venture vulnerable.
It is also assumed that culture can influence the timing of entry, the investment preferences and the
performance of the venture.

In international joint ventures two organizational cultures are brought together to form a third culture which is
usually inspired by the either of the two parent cultures or it forms a unique culture by combining various
elements from the parent cultures. Multinational and cross-cultural teams are likewise becoming ever more
common, meaning businesses can benefit from an increasingly diverse knowledge base and new, insightful
approaches to business problems. However, along with the benefits of insight and expertise, global
organizations also face potential stumbling blocks when it comes to culture and international business.

406 C- International Human Resource Management

Dr. Anubhuti Shinde
Godavari Institute of Management and Research, Jalgaon
While there are a number of ways to define culture, put simply it is a set of common and accepted norms
shared by a society.

Problems in IJV Culture and How to overcome them:

Both the national and the organizational cultures play a vital role in shaping the joint venture culture.

The problem in IJV’s is due to the influence of the national culture on the behavior and management system
that leads to conflicts, they further elaborated that IJV partners from different national cultures tend to
experience greater difficulty in interaction which could adversely affect the performance.

1. Communication

Effective communication is essential to the success of any business venture, but it is particularly critical when
there is a real risk of your message getting “lost in translation.” In many international companies, English is
the de facto language of business. But more than just the language you speak, it’s how you convey your
message that’s important.

Moreover, while fluent English might give you a professional boost globally, understanding the importance of
subtle non-verbal communication between cultures can be equally crucial in international business.

Where possible, do your research in advance of professional interactions with individuals from a different
culture. Remember to be perceptive to body language, and when in doubt, ask. While navigating cross-
cultural communication can be a challenge, approaching cultural differences with sensitivity, openness, and
curiosity can help to put everyone at ease.
406 C- International Human Resource Management
Dr. Anubhuti Shinde
Godavari Institute of Management and Research, Jalgaon
2. Workplace etiquette

Different approaches to professional communication are just one of the innumerable differences in
workplace norms from around the world. The concept of punctuality can also differ between cultures in an
international business environment. Different ideas of what constitutes being “on time” can often lead to
misunderstandings or negative cultural perceptions. For example, where an American may arrive at a meeting
a few minutes early, an Italian or Mexican colleague may arrive several minutes — or more — after the
scheduled start-time (and still be considered “on time”).

Along with differences in etiquette, come differences in attitude, particularly towards things like workplace
confrontation, rules and regulations, and assumed working hours. While some may consider working long
hours a sign of commitment and achievement, others may consider these extra hours a demonstration of a lack
of efficiency or the deprioritization of essential family or personal time.

3. Organizational hierarchy

Organizational hierarchy and attitudes towards management roles can also vary widely between cultures.
Whether or not those in junior or middle-management positions feel comfortable speaking up in meetings,
questioning senior decisions, or expressing a differing opinion can be dictated by cultural norms. Often these
attitudes can be a reflection of a country’s societal values or level of social equality. For instance, a country
such as Japan, which traditionally values social hierarchy, relative status, and respect for seniority, brings this
approach into the workplace. This hierarchy helps to define roles and responsibilities across the organization.
This also means that those in senior management positions command respect and expect a certain level of
formality and deference from junior team members.

International Compensation
For multinational firms, successful management of compensation and benefits requires knowledge of the
employment and taxation laws, customs, environment, and employment practices of many foreign countries.
Also needed are familiarity with currency fluctuations and the effect of inflation on compensation, and an
understanding of why and when special allowances must be supplied and which allowances are necessary in
what countries. All of these needs must be fulfilled within the context of shifting political, economic, and
social conditions. The level of local knowledge required in many of these areas requires specialized advice;
many multinationals retain the services of consulting firms which may offer a broad range of services or
provide highly specialized services relevant to HRM in multinational context. Because of their high-cost, HR
managers spend a great deal of time developing effective compensation and benefit programs for international
employees.

Objectives of International Compensation

When developing international compensation policies, a firm seeks to satisfy several objectives. First, the
policy should be consistent with the overall strategy, structure, and business needs of the multinational.
406 C- International Human Resource Management
Dr. Anubhuti Shinde
Godavari Institute of Management and Research, Jalgaon
Second, the policy must work to attract and retain staff in the areas where the multinational has the greatest
needs and opportunities. Thus, the policy must be competitive and recognize factors such as incentive for
Foreign Service, tax equalization, and reimbursement for reasonable costs. Third, the policy should facilitate
the transfer of international employees in the most cost-effective manner for the firm. Fourth, the Policy must
give due consideration to equity and ease of administration. The international employee will also have a
number of objectives that need to be achieved from the firm’s compensation policy. First, the employee will
expect that the policy offers financial protection in terms of benefits, social security, and living costs in the
foreign location. Second, the employee will expect that a foreign assignment will offer opportunities for
financial advancement through income and/or savings. Third, the employee will expect that issues such as
housing, education of children, and recreation will be addressed in the policy. (The employee will also have
expectations in terms of career advancement and repatriation.

Key Components of an International Compensation Program

The area of international compensation is complex primarily because multinationals must cater for three
categories of employees; PCNs, TCNs, and HCNs. In this lesson, we discuss key components of international
compensation, which include base salary, foreign service inducement/hardship program, allowance, and
benefits.

Base Salary

The term base salary acquires a somewhat different meaning when employees go abroad. In a domestic
context, base salary denotes the amount of cash compensation that serves as a benchmark for other
compensation elements (e.g., bonus and benefits). For expatriates, it is the primary component of a package of
allowances, many of which are directly related to base salary (e.g. Foreign Service premium, cost-of-living
allowance, housing allowance) as well as the basis for in-service benefits and pension contributions.
It may be paid in home-or-local-country currency. The base salary is the foundation block for international
compensation whether the employee is a PCN or TCN. Major differences can occur in the employee’s
package depending on whether the base salary is linked to the home country of the PCN or TCN or whether
an international rate is paid. (We will deal with this issue later in the next lesson) Foreign Service Inducement
/ Hardship Premium Parent country nationals often receive a salary premium as an inducement to accept a
foreign assignment or as compensation for any hardship caused by the transfer. Under such circumstances, the
definition of hardship, eligibility for the premium, and amount and timing of payment must be addressed. In
cases in which hardship id determined, U.S. firms often refer to the U.S. Department of State’s Hardship’s
Post Differentials Guidelines to determine an appropriate level of payment.

Allowances

Issues concerning allowances can be very challenging to a firm establishing an overall compensation policy,
partly because of the various firms of allowances that exist. The cost-ofliving allowance (COLA), which

406 C- International Human Resource Management

Dr. Anubhuti Shinde
Godavari Institute of Management and Research, Jalgaon
typically receives the attention, involves a payment to compensate for differences in expenditures between the
home country and the foreign country b(e.g., to account for inflation differentials). Often this allowance is
difficult to determine, so companies may use the services of organizations such as Organization Resource
Counselors, Inc., (a U.S. based firm) or Employment Conditions Abroad (based in Britain) who specialize in
providing regular up-to-date COLA information on a global basis to their clients; the COLA may also include
payments for housing and utilities personal income tax, or discretionary items. The provision of a housing
allowance implies that employees should be entitled to maintain their home-country living standards (or, in
some cases, receive a accommodations that are equivalent to that provided for similar foreign
employees and peers).

Benefits

The complexity inherent in international benefits often brings more difficulties than when dealing with
compensation. Pension plans are very difficult to deal with country to country because national practices vary
considerably. Transportability of pension plans, medical coverage, and social security benefits are very
difficult to normalize. Therefore, firms need to address many issues when considering benefits, including:

• Whether to maintain expatriates in home-country programs, particularly if the firm does not receive a tax
deduction for it.

• Whether firms have the option of enrolling expatriates in host-country benefit programs and/or making up
any difference in coverage.

Whether expatriates should receive home-country or host country social security benefits. Most U.S. PCNs
typically remain under their home-country’s benefit plan. In some countries, expatriates can not opt out of
local social security programs; in such circumstances, the firm normally pays for these additional costs.
European PCNs and TCNs enjoy portable social security benefits within the European Union. Laws governing
private benefit practices differ from country to country; firm practices also vary.

Bonuses

Bonus can be of various forms. One form is a percentage added to base pay, ranging from 10% to 30% of base
pay. The main concern of this approach is it is seen as a part of base pay and when repatriated, it is withdrawn
resulting in a pay cut. This may lead to dissatisfaction and grievance. A second approach is a lumpsum
payment at the beginning of the foreign assignment. The advantage of this is that it provides cash to
expatriates at a time when their expenses are high. The disadvantage of this approach is that it increases the
employee’s income in one year and may rise his or her tax rate.

Taxation

406 C- International Human Resource Management

Dr. Anubhuti Shinde
Godavari Institute of Management and Research, Jalgaon
It is perhaps the most significant concern of an expatriate while accepting the foreign posting. Income tax
policy varies in amount and structure from country to country. Countries levy this tax on expatriate working
there. Therefore, the company and the proposed expatriate need to obtain information about the income taxes
in the host country.

406 C- International Human Resource Management

Dr. Anubhuti Shinde
Godavari Institute of Management and Research, Jalgaon
Global Compensation and Emerging issues:

Setting the Right Salary for the Right Market- At the most basic level, targeting appropriate compensation
levels for local talent across multiple locations is becoming an increasing concern for employers. Pay levels
vary across national borders as a result not only of market and industry factors, but also due to traditional
practices and values inherent in the concept of salary. Requests for obtaining an appropriate salary level
generally arise out of the following common business situations:
• An employee asks for a salary increase.
• The company is struggling to attract and retain talent.

Setting the Right Salary When Data Is Limited- As a result of globalization, many compensation
professionals find themselves in need of salary information in market locations or industries where data has
traditionally been very difficult to come by, if any actually existed, for example:
• This point is particularly true for nonprofit and missionary organizations, which generally operate in
developing and/or remote locations. While research and ingenuity frequently enable organizations to locate
appropriate data in many difficult locales, this is not always the case; in many locations, no data exists.
• Salary levels for many highly specialized or technical positions require industry-specific data.

Costing Out the Options- While the previous issues relate to compensation concerns within markets in
which an organization already operates, potential expansion into a new market raises a host of other concerns.
Often, organizations want to explore the total costs associated with operating in a given market well before
making a commitment to that location; a cost feasibility study can highlight the challenges in administering
compensation. Such an assessment requires gathering a wide variety of data from a number of sources,
including market salary data for positions to be filled by local nationals, tax implications, benefit costs, and
the build-up of expatriate compensation for any personnel on a short-term assignment to assist with start-up
efforts. Thorough analysis of talent availability and costs associated with operating in a given location proves
invaluable for an accurate assessment of the bottom line, thus guiding the organization to make the most
appropriate expansions for the successful achievements of corporate goals.

Dangerous workplaces – “Employees are accepting assignments that take them to unsafe places in the world.
These assignments are often shorter term, but increasing in frequency. Compliance recommendations include
recognizing by country and assignment the continuum of threats, and establishing centralized policies and
multi-disciplinary teams to respond.”

Social media and global privacy – “The line between one’s work life and private life has been permanently
blurred by technology. Laws permitting background checks using social media are changing the landscape of
employment law and differ substantially between countries. Employers need vetted global privacy policies
that also recognize the inevitability that personal smart phones and tablets will increasingly be used in
business. Employers also need to consider how they will retrieve business information after an employee
leaves as this information can be housed in a social media channel. For example, decide whether LinkedIn
profiles are the property of an individual employee’s company.”
406 C- International Human Resource Management
Dr. Anubhuti Shinde
Godavari Institute of Management and Research, Jalgaon
Whistle blowing and overcoming corruption are a business priority – “Worldwide governments are
providing incentives for whistleblowers and promoting a business culture that embraces and protects
whistleblowers. Whistleblowers have emerged as ethical heroes and this new culture is embodied in the
Foreign Corrupt Practices Act, the U.K. Bribery Act and a recent push in Europe to strengthen whistleblower
protections.”

Third party funding of litigation – “Whistleblowers are proving to be a new market in which hedge funds
are investing. Employers should monitor institutional funding entitles for divisions supporting litigation
funding and express opinions. Employers should also consider this developing trend when assessing ROI on
compliance programs.”

The new face of discrimination – “New trends in discrimination include migrant and social origin
discrimination globally. Employers also need to be aware of discrimination liability related to economic
adversity and discrimination against the unemployed. Within the U.S., states are starting to adopt statutes
protective of the unemployed and the EEOC has flagged the potential link between current civil rights laws
and the disparate impact of unemployment discrimination. Outside of the U.S., unemployment discrimination
may be considered a form of social origin discrimination.

406 C- International Human Resource Management

Dr. Anubhuti Shinde
Godavari Institute of Management and Research, Jalgaon