In the article presented, there were two large-scale international companies involved: the Petrochemical Industries Company (PIC) which is based in Kuwait, and Dow Chemical Company (DOW) which is based in the United States involved. Both were internationally-recognized companies in the manufacturing industry as Ethylene Glycol suppliers (EG), which is an industrial material commonly used in the production of coolants, and other industrial commodities, commonly used in the automotive industry. These two big international companies set up a joint venture which they named MEGlobal. One of the major agreements in that joint venture is that the two companies will split whatever profit they will get from the venture on a 50/50 basis. So if for example, the joint venture company earned a sum of $1 Billion in its first year, then under the profit conditions of the joint venture, each of these two companies will be given $500 thousand for their perusal.
Also, part of the contract discussed the role that each company would play in the joint venture. DOW will provide access to its technology and expertise via its Canadian Assets while PIC, its partner, will take care of all financial matters. It would also be important to know that PIC was able to acquire at least half of DOW’s assets in Canada prior to the finalization of the deal which would lead us to the assumption that PIC is the more dominant player here. Both companies have seen interestingly progressive growth of the EG manufacturing market in Asia and to be able to address that issue, they decided to base MEGlobal in Dubai.
MEGlobal was meant to be focused on the processes of producing, marketing, and selling EG products such as monoethylene glycol (MEG), diethylene glycol (DEG), and other related products. Because of the sheer size and market influence of the two companies that formed the venture, as soon as the papers were signed and finished, MEGlobal rose as the second largest player in the EG market, dwarfing its former competitors in what appears to be close fight towards EG market domination. In a recent review of the company’s assets and other financial variables in 2011, it has been ranked as the third best performing company in the EG industry. Considering its prestige, no one would ever imagine that this joint venture was only sustained and operated by some 240 employees. This is why after certain computations at one point; it appeared that the venture has been earning $2 million per employee. Now, even though the joint venture is already more than 5 years old, close to a decade actually, some significant EG players in the market cannot help but to wonder how the two companies were able to sustain a successful partnership considering that close to 70 percent of joint ventures fail.
But despite its huge success, this joint venture was, without a doubt, not made successful without challenges and difficulties in the aspect of organizational and strategic management. In fact, significant challenges were faced by the two companies alongside the combined volume of their employees, which sums up to several thousands. Issues such as cultural indifferences, absence of teamwork, and other organizational issues that almost always led to poor work performance and business productivity appeared to be the most prominent. MEGlobal’s seven years of near market dominance was filled with challenges, not on the financial side but rather on the organizational management one.
Organizational and Cultural Issues
One of the biggest problems that the joint venture encountered came out during the transition process. Out of the thousands of employees form DOW and PIC, there would definitely employees who they have to choose to be assigned as workers of the newly-formed MEGlobal. Majority, about 150 of the total 240, official employees of the joint venture were extracted from the DOW. Naturally, the reassigned employees experienced some form of shock or transition anxiety. They were long term employees of DOW and MEGlobal is still technically DOW, yes, but there were a whole lot of differences they encountered during the entire transition process. Firstly, they were not informed nor educated about the transition that would happen promptly. Add the fact that they were left wondering about the new terms and conditions of their new positions and that would be like treading towards a completely dark and undiscovered career path. Employees who have their own family could not help but wonder whether they will still be considered senior employees, whether they would still receive the same compensation and privileges they were receiving before the major reassignment, and other things that may become affected as a result of such process. The employees were left with a lot of questions and at some point, they were also frightened by the fact that some would have to reapply for the same positions they had (in the same company) should they refuse to go along with the decision of the management to have them assigned to the newly formed company.
One concrete example of issues of cultural indifferences encountered in the venture was when a male Kuwaiti board of director member visited one of the plants. Upon arriving at the site, one of the employees, a female, who appears to be from DOW, extended her hands towards the board member’s, as if requesting for a handshake. The board member ignored the handshake and walked away, as if embarrassed. Apparently, the female employee who was originally from DOW was not aware that it was uncustomary for male Kuwaitis to shake hands with a female, more so if they just met each other. There were of course other more common manifestations that the employees’ were not aware of each other’s values and cultures, which is very important for them to come along and work together efficiently and effectively as a team. In summary, the two companies did a poor job in introducing the change. This is one of the fine turning points in the article because had they managed to see and address this issue properly, before it developed to a more serious problem such as unrest among the employees—which would definitely degrade productivity, the transition would have been flawless and they would not have to wait for a couple of years for the employees to adapt and deliver the productivity that their respective companies were expecting. Fortunately, after the first CEO of the joint venture was succeeded by a new one, the new CEO did not hesitate to solve the cultural and organizational issues because he believed such significantly delayed the growth of the company. So, he managed events and other ways to bring the employees, and even their families, closer together. He generously gave bonuses, thanks partly to the good financial performance of the company, such as gadgets and cash bonuses, to motivate the employees. A substantial raise was also provided to those who deserve it.
In the end, the new CEO’s steps promoted a very positive attitude on the workplace which translated to higher company productivity which further pushed the company’s strong market performance. In a survey conducted by an international global professional services company, Towers Watson, a skyrocketing score was achieved, which meant that the company was doing a great job to address the problem and prevent it from coming back. It also showed that the employees are more than contented working for the company.
The collaboration between PIC and DOW in forming, maintaining, and expanding MEGlobal can actually be considered as one of the best one. The company that was derived from a joint venture practically has everything that it needs to ensure that the company will exist and continue to flourish for at least the next 20 decades. It has the expertise, equipment, and more importantly, the capital to expand and improve its capacity, along with the ever and fast-growing EG market. No single organization is perfect though. One of the challenges that this organization faces is their slow growth. One of the company administrators admitted that the company did to grow as fast as they wanted it to. That may actually be attributed to the internal issues that the company faced. The company is merely less than a decade old and it has experienced various problems early on. These problems, especially the cultural and organizational issues, may have occupied the attention of the company more than they expected, which resulted to a significant decrease in the company’s projected rate of growth. This only goes to show that the issues such as the ones encountered by the MEGlobal joint venture could be a very influential factor that could dull growth and even be one of the reasons of an organization’s downfall.
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Spranger, D. (2004). Why Joint ventures Fail. Saul Ewing Publications.