QIRJAKO Frenki

IBINKULE Koudy

VIGNON Mathilde

GARNIER Emilienne

1
International Corporate Development

The Changan - Ford joint venture: same bed but different dreams?
I. Identify the problem of this Joint - Venture.
II. Propose your solutions.

I. Identify the problem of this Joint - Venture.

Because of the strong demand for high quality vehicles that were not produced in China,
western companies took the opportunity to internationalize in the asian economy and dominate
the market. One of them was Ford. But, at the time, in order for a business to operate from
China, the government obligated the foreign company to form a joint venture with a domestic
one. As a consequence Ford paired with Changan.

In 2001, Changan owned the majority of the stake of the JV with 50% while Ford owned 35%
(and Mazda 15%).The JV was proving to be successful with an increase of revenue of
£90million between 2008 and 2009. However, the JV started to face many issues.

It seems that the main problem of this JV on a majoritary basis is the cultural differences and
as a consequence, the lack of cultural intelligence from both parties. From this issue, several
problems derivate:

- Bad communication and miss match of business decision process, caused: difficulties in
optimising quality and efficiency outputs

- Different comprehension of the changes in the market and dealing with them, lead to: non
effective product design, innovation and as a consequence weakening the competitive
advantage.

As a result, the JV deviates from Chinese customers basic requirements and has difficulties to
refocus on the target customers in China.

2
To be more concrete and detailed we have conducted an analysis focused on the business
behaviour of US and China’s societies using Hofstede Insights. These elements reflect the day
to day and the problems that Ford and Changan had, because of their cultural differences:
USA
Individualism (one of the main 91points: Individualist culture:
JV issues) the managers were “isolated” in
their offices, and not
collaborative.
Power Distance 40 points: low score, which
means that mostly the power is
decentralised. This promotes,
flexibility and agility of the
company, better communication,
gives space to new ideas
coming from low & middle
management, faster business
decision processes, improves
adaptability to changes.
Long Term Orientation 26 points: Americans in business
are practical, but rigid in their
core values and ideas. In their
head they have a specific
definitions of “should” &
shouldn’t”, and in business this
tends to be a drawback,
because they lack adaptability
with changes. Even if they do try
to change, they go to far from
their on business identity,
leaving the company without a
clear purpose.
3
CHINA
20points: Collectivist culture:
they have a sense of community,
act in the interest of the whole
group and have a clear common
vision, as a real team. But this
has a drawback: many times it
can avoid confrontations and
problems are not really solved,
just swept under the rug. Which
is a trait of Chinese.
80 points: The power distance is
very high, the power is
centralized and the company is
very rigid. All the elements
mentioned previously for the US,
are not present in the Chinese
business society.
86 points: a very pragmatic
culture. They adapt their
business decisions depending
on the time, place and contexts.
Chinese have the ability to adapt
their core values and business
opinions to ever changing
situations of the present,
remaining adaptable and
modern.
 USA CHINA

Indulgence 68 points: the us society is very
prudish, their moto is “work hard
, play hard”. The us remains an
indulgent culture, which can lead
to lack of implication by the
employees and different
demands from the Chinese staff.
But these societies are very
optimistic by nature and
enthusiastic.
24 points: With this low score,
the Chinese in business are a
Restrained Culture. In business
they aim for control, time
management. The gratification of
the employees’ desires is low
and this could lead to an HR
crisis.

We did not include Masculinity and Uncertainty Avoidance, because the scores were very
similar, as a consequence it did not represented a problem between the two staffs. These 5
elements shown in the table represent the contrast between the American staff and the
Chinese one in the JV between Ford - Changan and are the majority of reasons why the two
companies did were not successful together.

Keep in mind that these situations are very common for Joint - Ventures. 75% of them fail the
first 5 years because of : frustrations, disagreements and confusion.

In conclusion, the challenges were:

- Cultural differences

- Different values

- Not much attention paid to planning and management of operations ( lack of communication
and collaboration)

- Non-adjustment to nex environmental circumstances.

Ford and Changan were indeed sleeping in the same bed, but with different dreams.

II. Propose your solutions.

1. The key to a successful intercultural Joint Venture is cultural intelligence.To solve the
problems related to cultural differences, it is essential for managers of both parties to
be aware of their own cultural aspects and those of the other country as well. Cultural
intelligence refers to the ability to interact effectively with different people.A culturally
intelligent person is someone who is aware, able to work and relate effectively with
people and projects across different cultural contexts. Luckily, cultural intelligence is
not naturally acquired, therefore it can be learnt and improved overtime. We would

4
recommend Chinese and US managers to have training sessions about this topic in
order to enhance their adaptability.

For the collaboration to work even better, the managers should go beyond cultural
intelligence and reach the stage of cultural sensitivity, which means they should put
themselves in the other's' shoes and genuinely care for the different cultures.

2. Being culturally intelligent will lead to a better communication between both parties.
It is stated in the text that US managers work in isolation meanwhile Chinese ones
adopt a more collectivist approach. It results in conflicts in decision making and lack of
consistency. Improving communication is the key to a more efficient joint venture,
managers should break the silos and work in a more collaborative way. One of the
issues raised by the managers was solved just by putting Chinese managers and
Americans in the same room to find a common ground. This should not be a one time
thing but a systematic way of working together.

3. The important condition to form a JV is that the companies are complementary. One
of them offers the market knowledge, the distribution channels, the customers and the
networks in the domestic market, while the other one offers the financial means to
conduct these operations, the experience and also the know - how. In our case, the
engineering resources owned by Ford were not made available for the Joint Venture
which caused several problems to design the cars expected by Chinese customers.
Not collaborating with the local firm led to a waste of resources and huge difficulties to
adapt to the market requirements. Our solution is for both companies to put in all the
efforts necessary in terms of resources and capabilities to make the Joint Venture
successful and maintain their competitive advantage.

4. To be more specific with the Ford/Changan JV problem, we think it is important for

Ford to invest on local engineering, and improve their local design capability to get
their company and product much closer to their target consumers in China. Indeed,
Ford used their own experience in India to sell in China, but that os two very different
countries that don’t work the same way, and where consumers don’t have the same
taste and purchasing behavior. As said before, it is really important for Ford to learn
from their Chinese partner so that the JV could work properly.

5
5. More than that, Ford should learn about the Chinese customers’ vision of other
countries that could impact their behaviour while buying products. In fact, “Chinese
customers did not accept the Ikon especially when they realised it had come from
India”.

Finally, the sustainability of the JV between Ford and Changan seems to depend even
more on Ford’s adaptability and efforts to deal with soft (cultural) issues than the
opposite. Indeed, the JV is located in China and Ford does not own the majority of the
stake. Moreover, as it has been said, the JV must count on good local engineering to
not loose its competitive advantage and to be able to refocus on the Chinese customer
expectations.