I agree that success or failure are not easily defined when examining acquisitions. In the example Aleks discussed, Ford did benefit from technology transfer through working with Volvo engineers. In this situation, you'd have to determine whether these advances (temporary and brief technological advantages in the auto industry) and absorbing the sales of a strong competitor can make up for the difference between Ford's purchase price of Volvo in 1999 and sale price in 2010 of $5 billion. There are other benefits from these types of business relationships that are more difficult to quantify. For instance, there's no doubt that Ford's recent ventures with European automakers will serve as learning experiences (expensive mistakes) for their future attempts at high engagement modes of entry.
In 1999 Ford acquired Swedish car maker Volvo for $6.5 Billion with the intent of expanding its "Premier Auto Group" that included Jaguar, Aston Martin and Land Rover. Following the acquisition, Ford and Volvo attempted to exchange synergies as Ford engineers traveled to Sweden to work in Volvo plants while Volvo engineers traveled to the US to work in Ford facilities intending to share technologies. The integration team tasked to smooth the transition was split 50/50 between Volvo and Ford managers in an attempt to balance decision making. Despite their best efforts, corporate cultures began to clash as Ford attempted to integrate further with Volvo and Volvo could not meet the demands of Ford's large, overly bureaucratic corporate structure. Though Volvo experienced relative early success in comparison to their other European ventures, they have not had a profitable year since 2005. It had become apparent that Ford had overestimated Volvo's value and overextended itself overall in Europe. Ford had failed at capitalizing on these well known luxury brands as a form of permanent expansion. This year, Ford sold Volvo to the Chinese automaker Geely for $1.5 Billion, a small percentage their purchase price ten years prior, cementing the venture as a failure as Ford continued to divest from European markets.
One reason that high engagement entry modes should be considered by managers is that the goals of each of the partnering companies can be often be confused in low engagement entry modes. High engagement entry modes allow for clear goals to be defined and allow for problems to be prioritized. Low engagement entry modes often do not adequately stress the importance of certain issues and the immediacy in which they need to be handled. A joint venture or equity alliance puts the partners in an all-in situation where the success of both companies relies on the success of the partnership.
As Walters, et al. indicated early in the reading, trust and compatibility are the primary concerns when selecting a partner for a strategic alliance. Cultural incompatibility is to be expected when forming international alliances and it can often be a detriment to building a trustworthy working relationship between the companies involved. Blending the cultures of partnering companies in any form of strategic alliance can be difficult, but often pays off by generating synergies that allow the alliance's perceived competitive advantage to take shape. For example, host companies can offer unique insight on the tastes and preferences of their home country market while a foreign partner can introduce manufacturing management techniques for the product they are pushing. Managers must define what the alliance's culture should be and manage its development to avoid clashes resulting in in-fighting or instability.
Lincoln Electric plants likely attracted workers who valued individualism in their work and in their life. A piece-rate system inherently fosters a climate of individual achievement and individual rewards. An employee knew when he or she went to work each day that their earnings were based how hard they worked and not based on some predetermined, rigid wage. LE's compensation system meant that employees were able to experience the immediate satisfaction of their work rather than waiting for a raise or bonus that may never come. Lincoln Electric was able to create an environment that harnessed the productivity of employees motivated by the notion that hard work and high quality work paved the way for individual success an improved quality of life. In this sense, Lincoln Electric developed an employment environment was a microcosm of the American Dream.
I agree with Greg that the manufacturing employee's sense of equality and worth is highly valuable and this partially explained why LE was able to maintain high employee productivity over an extended period of time. While it would be difficult for managers of other manufacturing companies to accept, I do believe that this creating this intangible is imitable. While other companies may not exactly follow the actions of LE's management team, there are other ways to foster an environment of employee equality and high morale. Profit sharing and employee ownership strategies are additional ways to tie individual performance to company performance.
Employee retention was one of the primary reasons that LE was able to maintain a cost advantage for so many years. The Guaranteed Continuous Employment Plan that was introduced in the 1950's demonstrated management's unique dedication to their employees. By guaranteeing all full-time employees that they would be retained (at least partially) regardless of economic downturns strengthened the employees commitment to the company. Though difficult to quantify, the strong commitment between employees and the company (vise-versa) was also a likely reason why productivity remained so high. This dedication to employees was largely responsible for allowing LE to avoid the costs of high turnover and a strong labor union.
Dan makes a good point by suggesting that the labor efficiency that produced Lincoln Electric's competitive advantage would have likely diminished over time as advances in production technology have eliminated the need for laborers to be involved with each step of a manufacturing process. While piecework compensation and "open-door" management style have both been mentioned as reasons for creating LE's competitive advantage, there are some other significant strategies that increased employee productivity. For instance, LE employees had no paid holidays and no paid sick days. The increase in productivity generated by these policies can not be overlooked.
One of the reasons that Lincoln Electric had performed so well and obtained a competitive advantage in the industry was that the commitment of upper management to their workforce generated commitment from the workforce to the company. The resource that produced this competitive advantage was an efficient labor force. Using the VRIN model, labor met some of the criteria of important resources. For instance, the labor force proved to be tremendously valuable to the firm by meeting high output levels while maintaining high quality. While labor was valuable to Lincoln Electric's processes, it was not considered rare or unattainable. However, the management and compensation strategy that spurred LE's efficient and dedicated workforce was rare in manufacturing at the time. Industry competitors were reluctant to imitate the management and compensation strategy of Lincoln Electric as they felt it was difficult to justify paying such high wages and bonuses to manufacturing employees. In turn, they dealt with the high costs of unionization, high turnover, and comparatively lower productivity which put them at a significant disadvantage.
In order to buy in to the premium/discount value, you have to first buy in to the relevance of the components of opacity and their effect on a country's economic environment. According to page 43 of the article, opacity scores correlate strongly with important economic indicators. As a country's opacity score increases (higher risk), indicators such as FDI (as a % of GDP) and capital access decrease. This indicates that the opacity score is reliable and relevant to businesses looking to enter a new market. While I'd agree that other factors should be considered, there are so many variables that affect the success of a business entering a foreign market, it is nearly impossible for one model to capture them all. The CLEAR model's premium/discount value seems to be designed to capture relevant data and could prove to be a useful tool.
![[Avatar]](/images/avatar26.png){kind=avatar}
Medley