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Week 11: MCS, Environmental Uncertainty, Org. Strategy, Int’l Operations, Interorg.

Collaboration Muhammad Ali, Henry Chen, Matthew Fink, Ian Liu

UTS Graduate School of Business 22705 2 PM Fri 28 October 2011

An International Joint Venture (IJV) is a type of multi-firm business partnership
An international business partnership in which two or more entities agree to create a new, jointly-owned separate entity, in order to carry on some special collaborative enterprise. Partners may contribute knowledge, resources, time, and money in different amounts.

IJVs MCS Slide 2 of 17 October 2011

Controlling Int’l Joint Ventures: Investigation of Australian Parent Partners
Cross-sectional survey of 97 companies to determine: 1. What are general characteristics of International Joint Ventures (IJVs) ? 2. What types of operational areas do IJV parents from OZ try to control? (“focus”) 3. How much control is exercised via control of decision-making processes? (“extent”) 4. What specific control “mechanisms” are used?

IJVs MCS Slide 3 of 17 October 2011

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Framework used to analyse features of the management control systems of IJVs Focus of Control Extent of Control Mechanisms of Control Formal Broad Total Dominant Shared Minority to Narrow IJVs MCS Slide 4 of 17 October 2011 None Informal Partners engage in IJVs for diverse reasons. depending on their environmental circumstances Generally. partners join IJVs: • To engage in complex projects that one firm would not be able to complete alone • To share risks • To share and cut costs • To dabble in new or related product areas For established firms: • To gain access to new markets and resources • To satisfy foreign regulatory authorities For younger firms: • To gain experience in the industry and exposure to industrial leaders • To transfer knowledge and technology into their own firms and home markets IJVs MCS Slide 5 of 17 October 2011 IJVs can be challenging due to issues inherent to partnerships and the “tyranny of distance” • Contractual Legal Constraints of Partnership ges e ra G en l to JVs • Competing/conflicting interests amongst partners C ha llen • De facto dominance by one partner C ha llen ges U e to niqu I JVs • Government/Regulatory interference in partner countries • Access to privileged information by partner • Cultural differences • Multiple working languages • Physical distance between partners IJVs MCS Slide 6 of 17 October 2011 2 .

Technology 2. such as: • Revenue and cost budgeting • Product and service development • Daily operations management 2. Managerial Expertise 3. the combo of specific functional control goals and looseness in appointing IJV managers could class “Focus sought” as narrow IJVs MCS Slide 9 of 17 October 2011 Questionable? 3 . 61% of firms have allowed mutual participation or the other partner alone to name General Managers of the IJV Taken as a whole. being engaged in anywhere from 1 to more than 10 IJVs at any given time 3 Biggest contributions of Australian IJV partners: 1. Material Procurement IJVs MCS Slide 7 of 17 October 2011 Framework used to analyse features of the management control systems of IJVs Focus of Control Extent of Control Mechanisms of Control Formal Broad Total Dominant Shared Minority to Narrow IJVs MCS Slide 8 of 17 October 2011 None Informal Focus of MCS is here evidenced by how partners have sought to place managers in IJVs 1. OZ partners seek more managers in planning and operational functions.Findings: Overview of Data Most Australian IJVs in this survey (73%) were with partners in the Asia-Pac region Firms had varying levels of IJV experience. 78% of firms have not demanded dominance of the board of directors 3.

Allow local partners to have control in areas that are outside of the firm’s own knowledge base (e. Use bureaucratic mechanisms of control as well as face time 3. interacting with local governments) 4. Build control systems for IJVs that are similar to their own 2. PROBLEM: These results seems to be at odds with the focus of control results. social controls such as: Regular meetings and organised contact Networking and socialisation (?) 72% of firms surveyed report building MCS in IJVs that are “similar to their own” IJVs MCS Slide 11 of 17 October 2011 Key Slide Conclusion On the whole. Install enough of their own people into the IJV to ensure that they can keep an eye on what is going on. which logically would be devolved to a local partner. while not being overbearing in decision-making processes (is this contradictory? A limitation of the analytical framework?) IJVs MCS Slide 12 of 17 October 2011 4 .OZ Partners report that they retain >= control than their partners in most operational areas For example. OZ partners report maintaining >= dominance in decision-making re: Capex approvals Marketing and distribution Mgmt of Daily Operations and most others… With the exception of public and government relations. bureaucratic control mechanisms in IJVs Examples: Planning and budgeting processes Formal authority relationship Standardised rules and procedures Supervision Also. Why? IJVs MCS Slide 10 of 17 October 2011 OZ partners tend to use highly structured.g. Australian firms try to: 1.

Amounts of value provided to : • Employee ( salaries. IJVs MCS Slide 13 of 17 October 2011 Case Study: Evaluate the TECO MCS Value Added Concept Value-added is measure of performance . interest) IJVs MCS Slide 14 of 17 October 2011 Case Study: Evaluate the TECO MCS Value Added Concept . design to increase energy saving and efficiencies. Greater understandability of the Value added concept 4. Stable environment IJVs MCS Slide 15 of 17 October 2011 5 . retained earning) • Society ( taxes. donation. Higher literacy rates 2. bonuses .Analysis The system has worked well in Taiwan Reasoning: 1. benefits) • Shareholders( dividends. Economic Growth 3.Case Study: Evaluate the TECO MCS TECO has three divisions: 1) Home automation 2) Factory automation 3) Information technology complex control system →→ simple control Good strategies : after 1972 The company focus to home appliance and high-technology information system products. Residual value goes to both shareholder and employee.

Case Study: Evaluate the TECO MCS Value Added Concept . the world has changed IJVs MCS Slide 18 of 17 October 2011 6 .Analysis Problem in developing Countries: • Understanding the system • Unreasonable goals • Lower education levels • Lack of motivation • Uncertainty due to changing conditions IJVs MCS Slide 17 of 17 October 2011 Case Study: Evaluate the TECO MCS Conclusion • The success of Value added concept for TECO does not mean it will also work well for other companies • After Globalization.Analysis The concept can work well in developed countries compared to developing countries Highly depends on the organizational culture If understood can increase motivation among employees IJVs MCS Slide 16 of 17 October 2011 Case Study: Evaluate the TECO MCS Value Added Concept .