The report is about a company Blue sword that went through achievement and failure as a result of its merger with the corporations having diverse work ethnicity. This Case Study highlights many important aspects of business. Firstly, about cultural differences and how it plays an important role. Secondly, the most valuable assets of the organization are its people, and how certain policies of HRM hinder the growth of the company. Lastly about organization strategy, the conflict of vision and goals can also create tensions.
This report shows the analysis of issues and situation Blue Sword Group is in and also explains the reasons behind the success and breakdown of the joint ventures done by Blue Sword and gives recommendations in mergers to avoid any collapse in future.
History of Blue Sword Group
Blue Sword Group was established in 1986. It took over a small bankrupt beer company, after which it became the largest producer of beer and drinks in the southwest of China.. Blue Sword Group was a successful company with income touching RMB 200 million Yuan in 1998. The workforce included 2,800 employees, and the company was spread in various sectors, ranging from chemicals, to soft drinks to beer.
Also it was a private company, compared to the other State run Enterprises, which gives the management more freedom to make decisions and adopt better technological practices.
Work culture of the Blue Sword
Relative to other Chinese state owned enterprises (SOE), Blue Sword Group's work culture is very different. Its management system had transformed from that of a socialist-oriented to a more marketing-oriented management system where there is an increasing level of staff dedication and loyalty. It was the responsibility of all the Managers of the Blue Sword Company to carry out all the business operations and be accountable for mistakes, if any. At the same time, they have complete authority to take appropriate decisions relating to their duties and the right to remove any employee who is not fit to do the job. Their accomplishments are assessed based on the contribution they make towards the profitability of the company.
Moreover, all the activities relating to the management of the Blue Sword Company are carried on based on the needs of the market. Market demands, trends and preferences are important factors that need to be considered in determining the nature of the new products, modifications in the existing product and even before retreating some products due to the decline in their demand. For this purpose the business market of Blue Sword Group is similar to a battlefield.
The promotion of the employees also relies on their individual success in the market. The people who reap the benefits in the marketplace are amongst those who have the ability to make accurate decisions, carry out a detailed analysis into the future and make preparations in time. At the same time the efficiency of the Blue Sword Company also depends on how loyal are its employees towards the company. The more loyal the employees, the more reliable they are to face the setbacks of the company. To achieve this goal, Blue Sword Company's staff and managers hold shares in the company. The position of the employee will depict their shareholding level. Generally, the high position holder has more shares. The advantages from this are directly linked with the company's profit and also employee's loyalty towards the company. The company also provided self-development opportunities to staff by transferring them to further education colleges to take on training programmes so that they can be promoted after finishing their lessons.
The long term positive relationship between the company and its employees will affect the work culture of the Blue Sword Group. The company's work culture also depends on strong dedication and interest to work along with a great level of loyalty amongst the employees.
The need for a Merger
The year 1994 had seen a remarkable success for the Blue Sword as it had occupied approximately 80% of the beer market share in Sichuan province. The main reason behind the merger was the growing financial world and the quickly changing economic environment which made it hard for the Blue Sword Company to operate. Due to financial constraints, the company was not able to expand globally to deal with the market competition. On consulting with the French Investment bank, the company decided to form an alliance with an International company by the name of Belgian Interbrew S.A. This merger was about making the joint operations larger enabling it to take advantage of new opportunities not only in the current marketplace but also in the global markets. At the same time it will also allow international companies to enter the Chinese market.
Differences in the Work Culture
There were several differences in the work culture of the Chinese Blue Sword and the Belgian Interbrew:
- Chinese managers place more importance n cooperative strategies than Belgian Managers who in turn lay more emphasis on contracts
- At times when there are misunderstanding and conflicts the Chinese managers seek support from a third party whereas the Belgians use open and direct forms
- The Chinese managers are risk averse compared to the Belgian managers and do not take risky decisions
- The Chinese prefer building strong social relationships whereas the Belgians do not find this necessary
- The Chinese follow the principle of equality relative to the Belgians who follow the principle of equity when it comes to motivation systems
Reasons for failure of the Joint Venture
The merger between the Blue Sword and Belgian Interbrew came to end within a year and there are reasons that caused the failure of the merger:
- No attention was given to the grouping of joint strategies of both companies and there was unclear direction
- Management control over the joint venture's internal operations was weak
- Unexpected interference from the Chinese government
- No understanding of cultural differences between the companies
- The management was unable to cultivate the new culture between the employees
- No realization of the impact on safety, loyalty, morale, productivity and relationships of the new culture
- No time to manage the human factors
The problems for the Blue Sword joint venture were intensified because of inefficient control on the internal functioning of the Joint Venture, the budget plan and feasibility study was not given enough attention. Because of this, the uncertain business environment could not be monitored. It is necessary that the managers of the joint venture comprehend the grouping of interests and threat exposure of the partners in order to be successful. The goals of both the firms were not in line with each other. Where Blue Sword Company concentrated on making the quality of the products better in order to export the good quality products in global markets, Interbrew was focusing on the Chinese low to medium level markets. The manager of the Interbrew partner was eager to expand investment in China with the short-range goal of making income without realizing the large different regional differences in its operating and cultural environment in China. On the contrary china believed in sustaining a steady economic growth by maintaining long term relationships. As a result there were conflicts in the business direction among the two firms.
One of the other reasons that lead to the failure of the merger was People Management. The expatriate managers who got higher salaries, housing and a car had started dominating the Chinese managers who then had less chances of getting promoted. Issues relating to employee staffing, organizational structure and performance management are very critical when negotiating in a merger. However, these issues were overlooked in the Blue Sword joint venture and there was no understanding of the Chinese work culture.Steps to avoid the failure of Blue Sword joint venture
The different understanding of organizational management and cross cultural comparisons between Blue Sword and Belgian Interbrew had affected the joint venture adversely. This could have been avoided if certain steps were taken into consideration before the merger of the companies. The challenge is to maximize the benefits of cultural differences while minimizing negative effects.
Blue sword had a different work culture compared to other State owned enterprises and therefore Interbrew should have done a deep analysis of the work culture and the values of Blue Sword before engaging in the merger.
Both the companies had different view of merger, and they did not have a shared intention of why they are going for the merger; Blue Sword wanted to improve the quality and to compete in the international market, whereas the Interbrew wanted to focus on the small and medium level market and to start making profit as soon as possible.
Proper study of the employee management, like employee retention, motivation, policies for expatriate managers like their salary and other benefits should be such that it should not dominate the Chinese managers, hiring policies and study of other traditional HR practices would have help a lot to take the merger forward.
The Western companies must have knowledge of the level of interference from the government, and changing policies that could affect the merger.
Contingent plans to tackle with any post merger issues should have been taken into account.
Negotiation of recruitment issues
The Belgian management also faced issues on recruitment in china. The Belgians should have explored the Chinese culture and negotiated with them on recruitment decisions at the initial business meetings. They should have negotiated on the following:
- The high rate of turnover as the Chinese are always looking for career growth and switch jobs frequently.
- High wages for managerial and other higher positions
- Placements of the well educated younger generation for managerial or high ranked positions in the company
- Salaries should be communicated through HR professionals who are well verse with the Chinese culture
At the same time, it was a challenge for Belgian management to perform negotiations with the Chinese. The Chinese support centralized decision making and value group agreement. They tend to have indirect communications which are built on the basis of trust and well-built relationships.
To achieve success in conducting business in China, the Belgians should have kept in mind that they:
- Understand how the cultural factors influence every level of the negotiation process
- Take time to build trust and create personal connections with the Chinese before moving forward
- Ensure that they have been effective in building trust
Keeping in mind the changing trends and utilizing effective recruitment techniques could have helped the Belgian management save the merger.
Rewards and Motivational system of Blue Sword Joint Venture
The most difficult task that international managers face is the need to motivate and lead individuals from different cultures. The ways in which employees are motivated also depend on cultural values. Employees can be rewarded based on their performance, equally or on the basis of their requirements. The Belgians considered to reward and motivate employees based on their performance whereas the Chinese paid more attention to work experience and qualifications of the employees when setting salaries.
The Blue Sword joint venture faced issues related to the reward and motivational systems. Certain new labor laws were developed which had a positive impact on employers in a way that the nature of the reward system, recruitment and contracts were more flexible. Decisions relating to the motivation and reward system should be taken by the management of the joint venture to make it for effective.
- Work should be structured and clear instructions and responsibilities must be communicated to the employees to ensure that the task is performed efficiently with minimal errors. To motivate the employees and increase their confidence, more emphasis on target setting, achieving goals and appreciating the employee when he/she does a good job should be given.
- The reward system must be arranged and should also include a sense of loyalty, belongingness along with seniority. Provisions for house allowance, external monetary rewards, performance bonus system and other welfare packages contribute in motivating the employee when recruiting.
- Effective training and induction programmes must be provided to new employees to make them well verse with the company and its operations. Job enrichment programmes should focus more on team work which will in turn prove to be more fruitful for the company
- Effective role models should be developed by the HR Managers and attention should be given in developing career paths, representing the practices and values of the company. This is seen as a strong motivator for the employees.
Success of the other mergers (Post-Interbrew)
Failure to reduce the cross cultural conflicts between employees was the main reason for the collapse among the Blue Sword and Interbrew merger. However, mergers that happened Post Interbrew had several reasons for their success:
- Investment in local brands strengthened the position in the market and also brand portfolios
- Expanding market share in which they operate which enabled increasing their operational efficiency
- More trainings on cross-culture staff integration is being provided to employees which allows a better understanding and sharing of beliefs, ideas, skills between the cross culture work group
- Modification of HRM policies by the government in international joint ventures
- More attention is being paid towards formulating contracts between the employer and employee in relation to salaries, job responsibilities and other bonuses
- Decentralization and flexibility of labor market
- More importance on performance-based rewards, health insurance schemes and commercial housing by State firms.
- Management of hiring and firing had to be followed as per the labor contract system adopted in 1986
Companies that get into mergers normally have different cultures. With the mix of all the diverse cultures, a new merged culture is developed. A new mission and vision becomes a crucial part of the merged culture and these should be developed by the cross-section group of representatives from both companies to avoid any future conflicts.
Having analyzed the causes for the success and failure of the Blue Sword Group merger and understanding it work culture, I would like to advise Blue Sword ways in which it can effectively manage the international teams:
The merger between the Blue Sword beer company and the Interbrew Company failed mainly due to different understanding of the management and cultural compatibility. Blue Sword must inculcate this in the international team and try to avoid any conflicts arising due to culture differences.
To avoid any further confusion and conflicts at a later stage, it is important that the reasons behind the merger are well communicated to the employees at all levels of both the merging companies. It is the responsibility of the person to be very specific and clear when conversing the message. It must be kept in mind that both parties pay more attention to what is being communicated to get an effective understanding.
In order to understand the joint venture's management, it is crucial that there is an increase in the study of management across cultures. It is the responsibility of the managers to consider the cross-cultural group structure and understand their behavior and beliefs to make the work group is effective. The expatiate managers must spend more time with the local employees and find ways to make the best use of cultural diversity while reducing the side effects of the same.
A shared sense of purpose should be established among the multicultural work group members. Blue Sword Joint venture's managers must create common goals to avoid the conflicts arising due to beliefs of culturally different work group members.
Recruiting of staff and allocation of rewards are two decisions that are important in cross-cultural relations. The management should know that employees of different cultures would react to different motivating factors in their intercultural interactions and accordingly the policies relating to staffing, motivation, bonuses and other HR policies should be formulated to avoid conflicts.
Blue Sword joint venture's management must design jobs that satisfy culturally based expectations about the job and is acceptable by the International team. The management needs to ensure that enough attention and care is taken when choosing the leader and which leader behaviors of a culture must be followed by the employees.
Approximately 40% to 80% firms that have merged with other firms seem to perform poorly than non-merging firms. Whether the merger will be a success or failure depends on the cross-cultural comparisons of the merging companies. In the case of Blue Sword, the main reason for the failure of the merger with Interbrew was their diverging corporate cultures. It must be noted that culture is the means by which companies can view themselves and also their policies and procedures. Blue Sword should have concentrated on its own work culture and tried to merge with companies having a similar corporate culture. It is essential to review the cultural fit among the two merging companies on the basis of their work culture. Impacts of cultural gaps should be recognized and accordingly strategies to cope with the potential causes of the clash must be developed and executed.
The management and operations were not effectively incorporated as being equal due to the difference in the ways in which the Chinese and the Belgians operated. In order to design a successful human resource management system for the Blue Sword Joint venture, it is necessary that there is a strong understanding of the cultural values and resulting interpersonal customs of the Partner Company and people who will be hired by the venture. However, the new labor laws are now relatively flexible and it has become easier to implement the western HR policies which have improved the rate of successful International mergers in China.