IJV MARLEY Automotive

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THE FORMATION OF AN INTERNATIONAL JOINT VENTURE

The Formationof an

Internationaloint Venture:MarleyAutomotiveComponentsRANDALL SCHULER, Research Professor, Stem School of Business, New York University;

PETER DOWLING, Associate Director, Graduate School of Management, Monash University,

Australia; HELEN DE CIERI, Lecturer, Graduate School o f Management, Monash University,

Australia

In Maidstone and Lenham in Kent, and Bitton near

Bristol, England, is the operation of Marley

Automotive Components Ltd. In the late 1980s it

entered into an international joint venture (IJV)

with the US company, Davidson Instrument Panel

- Textron of Portland, New Hampshire. An earlierarticle by the authors examined Davidson’s

perception of the IJV , including their reasons for

the joint venture, the critical human resource issues

they were facing and how they were planning to

deal with several unfolding human resource issues.

This article now portrays Marley’s perceptions of

the same issues. The purpose in using this case

study to describe IJV issues is to offer information

on human resource issues to readers considering an

IJV as the route to globalization. Hopefully, this

information will help companies to increase the

chances of a successful IJV experience.

Because of increasing globalization and its attendant

costs and risks, many firms are entering into inter-

national joint ventures (IJV). Although joint venture

formation is proving to be an integral part of business

strategy for multinational firms such as Glaxo,Grandmet, IDV, and Thorn-EMI, entering and operat-

ing them successfully is by no means a sure thing (Main,

1990). Research indicates that the failure rate of IJVs is

between 50 and 70 per cent (Harrigan, 1986; Levine and

Byrne, 1986). Some of the most significant barriers to

success involve people issues - issues relating tointernational human resource (HR) management.

Consequently, these issues are the focus of this article.

Specifically, this article describes many of the inter-

national human resource issues associated with forming

and managing IJVs. It does this through an intensive

case study of an IJV in its early stages of formation and

development. It addresses critical start-up issues from

the view of the British partner, Marley Automotive

Components Ltd. These are the same issues addressed

from the view of the US partner, Davidson Instrument

Panel reported in an earlier article (Schuler et al., 1991).

Given that the IJV has developed since our first article,

this article also addressed several other unfolding HR

issues identified in that first article.

The Parents: Marley PLC andDavidson-Textron

Marley PLCMarley is one of the leading manufacturers of building

materials in the United Kingdom and has similar

operations in many countries throughout the world.

Marley’s products extend from roof tiles, roofing felt,

bricks, aerated concrete blocks and concrete paving topvc flooring, plastic plumbing and drainage goods.

Marley also derives part of its profit stream from

property transactions by exploiting the value of sitessurplus to operational requirements. In addition, Marley

is recognized and well-established as a major supplier

of quality components to the European motor industry.

The particular division that deals with the motor

industry is called Marley Automotive Components Ltd.This division employs approximately 1,400 workers outof a total Marley workforce of 11,000.

304 EUROPEAN MANAGEMENT JOURNAL Vol 10 No 3 September 1992



TI- E FORMATION OF AN INTERNATIONAL JOINT VENTURE

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The nature of the automobile industry has changed

drastically during the past 20 years, and the effects have

been felt by all auto makers. As the automobile industry

h‘rs become globalized, success has turned on quality

products that fit right and perform smoothly and

nliably. But while quality has become a major concern

to the auto industry so have cost and innovation. New

products and new technology are vital to success, but

without cost reduction new products cannot be offered

at competitive prices.

Tile characteristics of the auto industry are, of course,

reflected in all companies supplying it. Marley Auto-

n- IJtive Components Ltd. is no exception. To succeed,

they must adapt to the demands of the new environ-

rnenl:. Doing so will bring rewards such as market share

al-d even more important perhaps, an extensive, cooper-

alive relationship with major automobile manufacturers.

E-sentially gone are the days of the multiple bidding

system, where winning meant delivering at the lowest

cost, with no assurance that the next year will be the

silme. Today, the automobile companies use sole

sourcing for many of their supply needs. Accompanying

this is a greater sense of shared destiny and mutual

cooperation:

T,‘le component suppliers are having to change with the times.

77e multinational car manufacturers increasingly want to deal

with multinational suppliers, giving them responsibility for

tlk design and development of sub-assemblies in return for

sil@e supplier status (Financial Times, 1 March, 1990, p. 8).

Trms, i t is not unusual to have design engineers from

suppliers doing full engineering design of the com-

pl nents they will supply to their customers.

An important aspect of the new cooperative, sole

sourcing arrangement adopted by automotive markers

is the willingness to conceptualize and form longer-term

relationships. For Marley Automotive this meant the

olportunity to establish an international joint venture.

In the summer of 1989, Marley agreed to establish an

1JV to supply instrumentation panels to a Ford Motor

Company plant in Belgium starting in 1993. They chose

at, their partner for this venture the US firm, DavidsonInstrument Panel.

Davidson Instrument PanelD‘ividson Instrument Panel is one of 33 divisions of

Ti:xtron, an $8 billion conglomerate headquartered in

P .ovidence, Rhode Island. Davidson Instrument Panel

and its two sister divisions, Interior Trim and Exterior

Tim, make up Davidson-Textron. All three divisions

at.‘? component suppliers to the automotive OEMs

(tmriginal equipment manufacturers). Davidson-Textron

is the largest independent supplier of instrument panels

fc r the US automobile industry.

Originally begun as a maker of rubber products for drug

sundries in Boston in the early 185Os, Davidson moved

its operations to Dover, New Hampshire, in the 1950s.

Its headquarters now are located in Portsmouth. A staff

in Portsmouth of fewer than 50 oversees the operations

of two manufacturing plants, one in Port Hope, Ontario,

and the second in Farmington, New Hampshire. The

lOOO-person operation in Port Hope is unionized, and

the 900-person operation in Farmington is not,

The IJV: Davidson-Marley BV

By way of review and update, Davidson Marley BV, the

name of the IJV, is a 50-50 partnership between a US

firm and a British firm. It is located in Born, The

Netherlands. Situated near Maastricht Airport, the

location was selected because it is near its primary

customer, Ford. Proximity to Ford was important,

because the company required its sole source suppliers

to meet its just-in-time inventory requirements. Thelocation was also selected because of favorable accom-

modation by the local authorities and the fact that it is

close to the Netherlands Car BV production plant (a

potential customer). The facility is being constructed so

that expansion can be easily incorporated and approved

by the local council. The plot of land is sufficient for

expanding by a factor of at least four.

There were several reasons for the IJV between Marley

and Davidson. First, Ford Europe asked Marley (who

had been supplying its needs for the Sierra line in the

UK) to supply its needs for its world car to be produced

at the Genk plant. Consistent with the world car con-

cept, however, Ford Europe wanted worldwide sourc-

ing. A joint arrangement with Davidson Instrument

Panel made a great deal of sense. It filled the worldwide

sourcing requirement and it was a company Marley

knew and trusted. Marley had been a licensee of the

Davidson technology for instrument panel skins and the

foam injected to give it shape and substance.

This long-term arrangement had given each other time

to get acquainted and learn about the other’s manage-

ment style and philosophy. The compatibility in their

styles provided confidence that an IJV might be suc-

cessful. They were also compatible in what they could

contribute to an IJV. Marley had marketing skills,knowledge of the European market and the ability to

oversee construction of the new facility and provide

administrative support. Davidson had the technological

expertise and complementary administrative skills.

Another reason for the IJV was to share the risk of a new

venture. While Davidson wanted to get into Europe and

Marley wanted to expand its automotive business, there

was no guarantee that Ford would be successful in

Genk. Marley’s primary businesses are construction-

related. To reduce its dependence on the construction

cycle, it had decided to expand its automotive business.

However, Marley did not want to do this without

minimizing the risks. The sharing of rewards was worth

the sharing of the risks with a long-term business

associate.

EU .!OPEAN MANAGEMENT JOURNAL Vol 10 No 3 September 1992 305



THE FORMATION OF AN INTERNATIONAL JOINT VENTURE

A joint venture with Davidson at a greenfield site in

Born also offered Marley the opportunity to introduce

a new management style and structure. During the

1980s more than 100 Japanese firms have established

operations in the UK. In doing so they have

implemented their human resource practices of work-

force flexibility, minimal job classifications and use of

teams with a total quality strategy. Though practically

unknown in British industry, including Marley’s other

operations, these practices seemed to be working well.

These practices are described in extensive detail by Peter

Wickens, the Personnel Director of Nissan Motor Manu-

facturing UK (1988). The opening of the greenfield site

in Holland, and also the creation of another joint venture

in the UK with a Japanese company, offered Marley the

opportunity to learn more about the Japanese policies

and practices and possibly extend them to other opera-

tions. This desire was certainly consistent with

Davidson’s methods of operations, since it has imple-mented many similar practices in its plants in New

Hampshire and Ontario, Canada.

In deciding upon the IJV arrangement, Marley and

Davidson had a choice here: they could either build a

greenfield site or take over a brownfield site. While the

brownfield option is faster and avoids all the aspects of

construction, the two partners thought it was more im-

portant to build to their own specifications. It was critical

to both that everything be designed to be compatible

with a teamwork, flexible job assignment-orientation.

A final reason for the IJV location was the potential it

offered for competitive flexibility. Locating the plant inBorn places it near Audi, Volkswagen, Mercedes and

Volvo operations. While these companies often supply

their own instrument panel needs, Davidson-Marley BV

could potentially offer a better product at a lower price.

To help develop this potential, Marley established a

small marketing company.

While not meant to be exhaustive, these were the major

reasons for the IJV from Marley’s perspective. They are

certainly consistent with Davidson’s motives and with

those suggested in the literature (Datta, 1989; O’Reilly,

1988; Gomes-Casseres, 1989; Harrigan, 1987a; 1987b;

Shenkar & Zeiia, 1987; and Main, 1990). Nonetheless,

this does not ensure success nor diminish the risk of

failure.

Reducing the Risk of IJV Failure

Managing IJVs can be very difficult. The difficulties, and

thus the reasons for failure, include;

Partners cannot get along;

Managers from disparate partners with the

venture cannot later work together;

Managers within the venture cannot work with

the owners’ managers;

Partners simply renege on their promises;

The markets disappear; and

The technology involved does not prove to be as

good as expected.

Both Marley and Davidson think that they can overcome

the odds of failure in their IJV. Much of their confidence

rests on the fact that they know what it takes for a good

partnership to survive and flourish (as illustrated in

Exhibit 1).

Despite the many positive features of the Davidson

Marley BV IJV, there is a consensus that the very nature

of joint ventures contributes to their failure - they are

a difficult and complex form of enterprise (see Shenkar

& Zeira, 1987%; Main, 1990; Brown, 1990). As described

in our earlier article (Schuler et al., 1991), the critical

issues which IJVs face revolve around control, conflict,

goals, management styles and degrees o f commitment.

Who controls the IJV - from its inception through to

the early critical staffing appointments - can lead to

failure. The Davidson Marley BV IJV has a board of

directors with two members from each parent. All majordecisions are to be decided by this board. Whenever

local Dutch management or their staff encounter key

issues, the board decides. To ensure that IJV develop-

ment and production deadlines are not compromised,

Ford requested that Marley retains one less share in

voting on major issues until production starts in January

1993. This arrangement would help address any critical

issues of control and conflict if such were to arise during

the start-up period.

Other positive factors included joint selection of the

general manager and human resource manager, and an

arrangement whereby Marley supplies the local market-

ing knowledge and makes the arrangements with the

local suppliers, while Davidson supplies the technology

and the financial systems (including the financial con-

troller for the operation). These arrangements thus

remove many potential disagreements and conflict and

form part of the IJV agreement. Thus, errors of omission

are avoided by extensive discussion of issues and formal

recording of all agreements.

In terms of goals, management styles, and degrees of

commitment, Marley believes that it has compatibility

1.

2.

3.

4.5.6.

7.

d.

9.

10.

11.12.

Shared objectives (a joint mission)

Co-operation as equals (based on parity, no domination

or paternalism)

Openness, mutual trust and respect of others as persons

and their values, capabilities and objective under-

standing of their intentions

Building on each other’s strengths

Reducing each other’s limitat ions

Each has something the other needs (resources,

access, etc.)

Pooled capabilities and resources permit taking on tasks

neither could do alone

Two-way flow of communication (breakthrough of com-

munication blocks)

Mutually perceived benefits

Commitmenr of leadership and middle management to

find some shared values, without ignoring the fact that

they are not identical

Co-learning flexibilityA win-win orientation

Exh ib i t 1 What i s a good par tne rsh ip? I

306 EUROPEAN MANAGEMENT JOURNAL Vol 10 No 3 September 1992



Tf IE =ORMATION OF AN INTERNATIONAL JOINT VENTURE

--

v. ith Davidson on these three issues. It is important that

f: rms interested in IJVs give serious consideration to the

degree of cultural homogeneity, This is particularly the

c,lse with regard to North American and Western

European countries which share a similar Western

cultural heritage. These cultural similarities tend to(Ibscure difficulties. Such obfuscation is all the more

likely when the differences are subtle and not obvious

d luring initial negotiations. For example, when dealing

bjith Asian firms, because Western managers expect

differences, they will be more sensitive to cultural

diversity. When dealing with firms which are perceived

tc‘ be culturally similar, managers will be less sensitive

to differences which while being subtle are still

important (Brown, 1990).

P s a case in point, there are important differences in

l;inguage usage between English-speaking countries:

i\ mericans tend to use the term ‘plant’ to refer to thebuilding in which operations take place and machinery

i!: located, while the British use the term ‘plant’ to

include machinery. ‘Natural wastage’ means voluntary

rc+gnations and retirements in the UK but something

rather different in the USA! It is important that both

p‘irties to a joint venture clearly define key terms early

on in discussions to minimize the problems attendant

M th miscommunication. This suggests that firms enter-

ing into a joint venture establish a glossary of terms

nngardless of whether they think they have a common

lr nguage. Where differences in definition exist or in

bvoader matters such as what selection methods to use,

it seems advisable to go with local custom.

T ems while it appears as if Marley and Davidson are on

top of the critical issues that can give rise to IJV failure,

tk ey still face many human resource issues that are

bt!ginning to unfold in the evolution of their partner-

ship. These issues include the assignment of managers,

trrmsferability of human resource, managers’ time-

spending patterns, human resource competency,

management loyalty issues, and career benefits and

pl,mning (Shenkar and Zeira, 1990). The following

sections show Marley’s views on these issues.

The Assignment of ManagersThe general manager for the IJV has been selected. He

was selected by both parent firms from three Dutch

finalists identified by the search firm Spencer Stuart.

The process was done in a way consistent with

European practices. Marley recognized the importance

of adjusting to the employment practices of the host

country rather than just imposing parent country

pr61ctices on the otherwise local (i.e. European)

operations. While there is considerable divergence withrer;ard to the development of relatively high minimum

st<jndards of employment conditions as a consequenceof European integration, there is divergence in terms

of both specific human resource practices and imple-mentation of HR policies. For example in comparing the

UK and France on the use of reference checking:

, UK firms are still using references as proof o f someone’s

fitness to do the job. More than 70 per cent of UK firms use

them compared with just over 11 per cent in France

Personnel Today, February 5, 1991, p. 5).

In selecting the general manager for the IJV, Marley gavesignificant weight to experience in manufacturing.

Interviews were used to evaluate the degree of fit with

the operating style and management philosophy of the

parents. Employment tests such as aptitude and

personality were not used.

Once appointed, the general manager participated in

selection of the IJV’s human resource manager in

February 1991, using a similar process. These managerial

appointments coincided with the final property

purchase and ground breaking for the new plant.

While both of these individuals could have been broughtin even earlier to achieve greater feelings of ownership

and involvement, this was not done due to cost con-

siderations and the need to carry out these initial

recruitment assignments jointly. However, this group

has now been given the freedom to select, appraise,

train and compensate the 250-300 employees who will

be hired by August 1992. The current, relatively high

unemployment rate in this region (around S-9%)

should ensure a sufficiently large applicant pool.

Although Marley had nominal lead responsibility for

initial recruitment, the strategy for recruitment, training

and compensation was developed jointly by senior

human resource executives at Davidson and Marley

agreed upon by the Davidson Marley board.

Transferability of Human ResourcesBoth parent firms are committed to the success of the

IJV and are transferring experienced employees to the

IJV. Even with the most systematic planning process,

unforeseen events will occur. For example, the

engineers assigned to design the plant were supplied

by Davidson. While highly qualified, they calculated

measurements in feet, inches and US gallons. The local

Dutch engineers had to convert these non-metric

measures when letting contracts to Dutch firms and

gaining approval from local authorities. Since Davidsonwill supply the financial controller, US accounting

procedures will be used and a corresponding set of

accounts will need to be established to meet Dutch

auditing requirements.

Allocation of Start-UpResponsibilitiesInitially, IJV staff will need to focus on immediate, short-

term issues in establishing the joint venture. The IJVstaff are not under pressure to produce an immediate

profit since the business plan allows for a reasonabletime horizon to achieve profitability. Marley has estab-

lished a sales and marketing group in The Netherlands

for the IJV to look for new contracts. Both parent firms

will offer training programs and support, including tech-

EUROPEAN MANAGEMENT JOURNAL Vol 10 No 3 September 1992 307



Tt IE FORMATION OF AN INTERNATIONAL JOINT VENTURE

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