Bonazzi Indo Joint Venture Culture Clash or Pure Economics?

Introduction

Joint venture is defined as “a commercial enterprise undertaken jointly by two or more parties that otherwise retain their distinct identities” (Oxford Dictionaries) . This activity become ever more important in India as a result of the rapid growing of automotive industry. Bonazzi Indo Fasteners Limited (BIFL) and Indo Bonazzi Fasteners Limited (IBFL) were joint ventures between an Italy based global oriented company, Bonazzi group, and an India based family oriented company, Indo group. BIFL was set up to manufacture fasteners primarily for the Indian and global passenger car market and IBFL focusing to serve Indian commercial vehicles market. Bonazzi is a global company, having six factories, with negotiations in Europe and United States. Indo group is domestic, having sixteen factories across the country and negotiating with most India. A successful joint venture can significantly enlarge and benefit the companies involved, but if done wrong, it can also have detrimental damages. The purpose of this case analysis is to address the key issues faced by the joint venture between Bonazzi and Indo. Some of Hofstede’s cultural dimension models will also be applied for analyzing purposes. To sum up, the end of this analysis will propose alternative solutions for what could have been done to run a successful international joint venture.

Bonazzi and Indo Rationale and Strategic Logic for Joint Venture

The first strategic reason for entering the joint venture was the motivation to build a synergy. The expectation to produce a greater result together than doing it on its own can drive a company to find joint venture partners with whom it can create such a synergy. Secondly, the strategic logic is that when two innovative companies able to share their technology, it will enable them to improve upon each other’s ideas, skills, and potentially to result in greater profitability. Despite the fact that both Bonazzi and Indo have a large market share and manufacture a various range of products of auto components in their countries, however each of them have different market segmentations and competencies. Bonazzi is technology driven entity, valuing high degree of customer equity, and having strong market share in manufacturing automotive fasteners, automotive bearings, and automotive castings in the European market, but had no ties with Asian countries. Whereas Indo, is having core strength in low-cost manufacturing system for a range of auto components and valuing strong customer relationships as well as become the major supplier for commercial vehicle segment across India, but had a weak market share in the passenger car market. At this stage, the third strategic logic for diversification purpose appears as one of the underlying reasons for their joint venture decision. The reason behind was that both of the companies wanted to get access into diverse markets, development of diverse products and this could be a driver to further diversify innovative working force. As Bonazzi started to lose ground in Europe due to declining French market, so expanding to Asian such as India or China could be a good option to take advantage of the low labor cost and expand their market share there, while coincide with the circumstances where Indian government was promoting positive economic and business ambience for the automotive manufacturing industry. With Bonazzi’s competencies in the passenger car segment globally, Indo saw this as an opportunity to gain access to Bonazzi’s technology and help them to enter into the passenger car segment industry in India. Therefore, entering into joint venture could conceivably results in mutual benefit to overcome their own weakness.

Performance Assessment (Economic) of the Joint Venture

Based on financial data for Bonazzi-Indo fasteners in exhibit 4 of the case, periodically the financial performance of BIFL still considered to have positive trends and growing profitability. From year 2008-2010, the sales data shows significant increase (from 6.6 – 18.1 mill USD), correspondingly there was substantial improvements of capacity utilization from 30 percent to 75 percent and generous increasing profitability from negative (-1.8 mill USD) to positive (0.6 mill USD) performance. Other supporting quantitative data indicates subsequent positive financial performance such as the significant reduction in logistic (9% to 6%) and warranty (5.5% to 2.7%) costs as a percentage of sales. These measurements indicate the well-performing financial management in allocating resources and minimizing costs efficiently and effectively. Some negative/underperforming results could occur as the effect of financial crisis, as compared to the performance of auto component industry statistics (exhibit 2-in the case) which also indicate negative performance, therefore those industry was experiencing negative downturn at those periods. To sum up, from the economic perspective of economic, the joint venture was still considered well-performing. Next, the root problems from cultural perspectives would be analyzed.

Problems Identification and Analysis

The relationship between Bonazzi and Indo has deteriorated due to its confrontational nature and lack of understanding from both cultures that has led to the difficulty of brokering peace. Once they decided to enter into joint venture, numerous mistakes were made. Moreover, between Italy and India themselves, there were three drastically different level of Hofstede’s model dimensions, which are Power distance, Individualism and Uncertainty avoidance (see Exhibit 1). All of those distinct dimensions could be the underlying causes of Bonazzi and Indo conflict.

Firstly, the basic problem raised because of Indo had three successful joint ventures previously that brought them into ‘taking for granted’ action in which they decided not to run a due diligence in entering the joint venture with Bonazzi as they thought that this joint venture would result in the same way. On Bonazzi side, assuming the experience possessed by Indo and the successful technical license agreement between them, therefore, for costs minimizing purposes, they both ignored the due diligence practices.

Secondly, the problem raised due to the inability to produce quality products. The Hofstede’s dimension of uncertainty avoidance visibly appears here (see Exhibit 1). India has a medium score of 40 that they have the tendency to tolerate more for imperfection and uncertainty than Italy (score 75) with tendency against uncertainty and making the country highly avoids ambiguous situations. In this case, Indo group had invested 20 million for the joint venture, whereas Bonazzi had put a lack of capital investment in new machinery.