The 90's opened up new possibilities for the internationalization of
Spanish companies. Large markets have emerged in Eastern Europe that create
new opportunities for growth and expansion. Being the largest of the Eastern
countries, Russia has a particular appeal. However, direct investment in
Russia involves a high risk for Spanish companies. First, investing in Russia
involves significant country risk, mainly due to political instability,
lack of infrastructure, lack of laws governing and protecting business interests,
and difficulties in obtaining supplies and raw materials. Second, the cultural,
political, and economic differences between Russia and Spain are large.
Spanish companies are unfamiliar with the peculiarities of this country
when investing there for the first time. Thus, partnerships become an attractive
alternative for entering the Russian market.
However, although the use of partnerships reduces entry risks, managing
these partnerships entails difficulties. On the one hand, having a local
partner may reduce the entry risk faced by the company as well as its level
of committed resources. On the other hand, partnerships are difficult to
manage, especially so when cultural differences between the partners are
significant.
Operational and cultural differences between Spanish and Russian companies
introduce difficulties specific to this kind of partnerships. Nonetheless,
the management difficulties may diminish if, at the partner-selection stage,
attention is paid to the companies' ability to work together, provided their
skills are complementary. This will also influence the trust-building process.
Companies thinking of doing business in Russia through partnerships may
benefit from the experience of other companies that have already been through
this process. Very few Spanish companies have undertaken this initiative.
We approached four of these (two in the consumer goods industry, one in
manufacturing, and one in services) and asked their managers about the following
issues:
What difficulties may be encountered when partnering with Russian companies?
How do the characteristics of the Russian partner influence the relationship
management?
How does the trust-building process develop?
We report on some of the insights managers shared with us.
DIFFICULTIES ENCOUNTERED
Two main sources of difficulties, and thus hindrances to success, are
the operational and cultural differences between Russian and Spanish companies,
with the cultural differences having a key impact on the operational ones.
Cultural differences
Idiosyncrasies show in a number of instances. To name a few, it proved
very difficult to achieve an equally results-oriented approach among both
Russian and Spanish managers. As Westerners, the latter feel a stronger
pressure to achieve a certain goal that has been set, and have a stronger
time awareness. This awareness results in concern for progress towards goals,
though not necessarily in a short-term myopia. In contrast, while Russians
are conscious that there is some goal to reach, they do not seem to feel
the time pressure or to be diligent in taking steps to achieve those goals.
Likewise, Russians do not seem to take the initiative to solve the problems
that arise; rather, they present them to the Spanish party with no suggested
solutions. This happens at all levels in the organization. For instance,
a manager in a manufacturing company explained the difficulties they faced
in making workers in the production line responsible for fixing problems
in the line. Another explained the difficulties in convincing people that
they have to make their own decisions and take responsibilities (to the
level, for example, of getting the CEO's driver to decide when he should
fill the car's gas tank).
Bureaucratization is another contextual condition that poses difficulties
at the operational level. In several cases, our interviewees explained how
discussions with representatives from the local partner were long and ineffective
because of the need to follow bureaucratic procedures so that it took a
long time to make a decision. In one particular case, the negotiation of
the joint venture was not done directly with the partner company but with
a governmental committee. The negotiation, with many ups and downs, was
hard to conclude.
Operational differences
Contrasts in the way of running a business stem from the drastically
different concepts of the business enterprise and the functions it should
perform. Western managers take as a given that a company's purpose is to
provide some good or service and, in so doing, to make some profit. In the
Eastern world and prior to the recent changes, however, the purpose of a
company was to serve a centralized and planned economy by complying with
some production standards. These radically different starting points translate
into important differences in management practices that, when brought together,
give rise to difficulties. For instance, we found that a Russian partner
initially considered that the more people were employed, the higher the
profit would be. They argued that labor was not a cost component to be included
in the profit and loss statement.
Particular areas in which business practices differ and which bring difficulties
in managing the partnerships include:
Price setting
The difficulties encountered in setting prices can be easily understood
if one thinks of the fact that the very notion of "market" was
alien to Russians until very recently. A company selling at a higher price
than another was simply thought to be stealing from consumers.
Investment policies
Russian partners do not seem willing to make investments. Rather, they
expect the Spanish partner to do so. This expectation is based on the Russians'
belief that Western companies have large profits elsewhere, and so they
expect those profits to be invested in Russia. Also, Russian managers have
to be convinced of investing with some profit prospect, rather than just
as a mere means to serve central plans.
Cost analysis and control
The Russian and Western accounting systems are designed for different
ends. The Russian system serves a number of purposes other than providing
an analytical tool for management, mainly control purposes, including labor
information and tax estimation, while cost control by product lines is a
new concept to Russian companies. Because of these differences, most partnerships
have to maintain a dual accounting system (one for local purposes and the
other to allow the Spanish company to control the operations).
Quality control
Product quality was not an issue in the former Russian economic system.
People would consume whatever was offered to them, which was pre-specified
in the form of production standards for the companies by governmental agencies.
Hence, there was no need for companies to pursue quality, and even less
to control for it. For instance, one interviewee explained how their Russian
partner considered production as a bulk to be looked at in volume terms,
but not in quality terms.
Understanding the organizational structure
Russian companies were unaware of management processes, systems and style
which govern the way a Western company functions. One manager told of a
mechanic appearing in the middle of a meeting of the Board of Directors.
For some of the Spanish companies, the feeling was that they had to create
an elementary but clear organizational system, where the emphasis would
be to put in place a few key policies, hoping to evolve into a more developed
stage as the organization grows.
PARTNER CHARACTERISTICS AND RELATIONSHIP
MANAGEMENT
If, at the partner selection stage, the companies' ability to work together
is assessed, managing the relation- ship becomes easier than otherwise,
and the chances are that the partnership will be more successful.
As in any other partnership, complementarity of the companies' goals
is a necessary condition for success because it helps overcome difficulties
that arise in the relationship. Also, cultural differences become less of
an issue if all of the partners share common goals.
Initial conditions that make a company rely on its Russian partner include
the partner's reputation and its attitude towards the project. Getting to
know what the partner has done in the past is an important way of assessing
the partner's abilities. References about the partner given by other companies
are also useful.
Another indication of the partner's abilities is its attitude towards
the project. According to one manager, the perception that the Russian company
was enthusiastic about the project and its belief that the partnership was
the ideal form to carry it out, was taken as evidence of the Russian company's
commitment.
Success was enhanced when the Russian company relied on the direction
set by the Spanish company. In some cases, it seemed critical that the Russian
partner realize that its Spanish counterpart was central for the local company
to fulfil its expectations for the future, and that its aspirations would
be accomplished only through a partnership with the Spanish company. At
a broader level, this awareness of dependence on the Western world led the
Government to combine the privatization process, and even to allow foreign
capital investment.
The personal features of executives involved in the partnership also
clearly influence its success. For some companies, personal traits of the
Spanish managers were key for success (they have to be committed to the
project and to people relationships, have business aggressiveness, be able
to implement evolutionary solutions, and not be driven by the short term).
For these managers to bring the project to success, they have to be concerned
about laying the foundations of the business rather than about growth.
Trust-building
Building inter-partner trust is one aspect of managing the relationship
that deserves particular attention. For a partnership to be formed, some
initial trust between the companies involved is necessary. As time goes
by, trust may be enhanced or destroyed. At early stages, the idea of trust
seems close to that of reliability. It takes time and interactions to start
having confidence in the partner's good faith.
Managers unanimously agreed that legal contracts play no significant
role in the trust-building process. A few of them explained that the contract
had been carefully designed by lawyers, and every detail had been studied,
discussed and signed, but then the contract had been part to one side and
did not rule the relationship. While it is necessary to move prudently and
to have a good, tight contract, by no means is this sufficient. The contract
sets the basis on which to develop the partnership. The challenge is to
give it life, but nobody will enforce it. One of the interviewees thought
that contracts are hundred-percent effective when they bind institutions
other than private companies; however, althrough contracts between private
institutions may work out, they may also fail and prove to be useless. The
reason for this is not the contract itself, but rather the environmental
conditions (namely, the fact that there is no market to sell shares or specific
assets in case one partner wants to abandon the venture).
Spanish companies also face difficulties in assessing their counterpart's
trustworthiness. In particular, there are misunderstandings regarding commitment
to the given word. While for a manager with a Western mentality a verbal
agreement is to be fulfilled, this does not seem to be the case for Russians.
Several of our interviewees explained how a verbal agreement that had been
reached one day was not observed the next day. Language presents barriers
to communication that make relationships harder, especially when there is
a need for a translator. Direct contact is important in building the relationship.
As one manager put it, he preferred his own poor Russian rather than having
to go through translators. A good interface becomes very important. Often,
it is difficult for Spanish companies to assess the validity of the figures
provided by the Russian counterpart, and having a "feel" for the
company becomes critical.
Over time, the interactions between the partners help shape a deeper
trust - or destroy it. This process of trust-building is influenced by the
way decision-making takes place, and by the companies' attitude towards
conflict resolution. Decision-making by consensus involves long discussions,
but it brings the partners' attitudes closer together.
Interpersonal relationships act as the cornerstone for trust-building.
Interpersonal relationships develop over time. To Westerners, Russian people
look distrustful. The reasons for Russian distrust of Westerners include
the country's history and the behavior of early Western entrants that left
some negative impressions of capitalism. As a result, there is a certain
amount of resentment and incredulity towards the West. However, Russians
also seem appreciative of a true friend-ship, and are able to distinguish
it from a mere forbearance born of pure economic interests. The ability
Spanish people have to develop true friendships with people from other Western
countries may provide some advantage to Spanish companies doing business
in Russia. |
