Bonazzi Indo Joint Venture

Pritkumar Patel

Dr. Ekin Pellegrine

MGMT 3680-E01

02/18/2015

Bonazzi Indo Joint Venture

1.                 Bonazzi Company is based from Italy and was founded in 1945 by Angeli. It is a technology driven entity globally spread business, it has 6 factories worth of total $1.4 billion Company. In 2004 Bonazzi was named largest manufacturer of fasteners in Europe, but in 2006 Bonazzi Company began to lose market share & volume due to a declining market. Which indeed started to lose money in French facility and that lead to increase in debt of over $140 million. Under great pressure of the financial stress Bonazzi decided to shift the French plant operation to China or to India for advantage of lower cost labor and to develop their market share in the Asian market. Indo Company had close to 50 percent share of suppliers and heavy commercial market in India. The two companies decided to go for a joint venture because of expansion of market opportunities, Machinery Knowledge and Different interests & goals.

                        Bonazzi had a strategic logic of expanding their market share in Asian market and shifting their plant in India for low cost of labor. Whereas Indo logic was to expand their passenger car segment market with new technology and machinery, both companies had their own interest and goals for a joint venture adventure. Both companies view was to be benefited by this joint ventures adventure. Bonazzi would get whole new revenue flowing from the Asian market with low cost of production, whereas, Indo would get Bonazzi’s technology and machinery which would lead to expansion from the commercial market to consumer market. As a result of interests BIFL- Bonazzi Indo Fasteners Limited and IBFL Indo Bonazzi Fasteners Limited companies were created in collaboration.

1.                 The Bonazzi and Indo relationship was dated back in 1997 before their joint venture agreement. The two groups entered into a technical license agreement for the transfer of technology for automotive fasteners from Bonazzi to Indo. Using Bonazzi’s technology Indo managed to successfully service the Indian commercial market with close to 50 percent of the market. The total investment in the plant and machinery was close to $20 million, whereas the average price in India for a plant was lower, about $8-$9 million. At the signing of the joint venture Bonazzi transferred their fifteen years old French machinery to India as a contribution to the joint venture. The machinery was old and the only French team understood the use of machinery and equipment. It took over six months to transfer the machinery as many technicians and engineers resigned from the job. The plant was commenced in late 2007 and production started in 2008. The difficulties arise between the two companies because of breakdown in French machinery and equipment. Which was common and leads to low volume of production, high logistic costs and Faulty products in International markets like Europe. As the Indo group has a minority share of the joint venture they had no management control. Indo customers were complaining due to lack of supplies and Bonazzi supply all the products in international markets. Indo wanted their customer to get quality products instead of defect products and more investment from Bonazzi group to fix the production, whereas, Bonazzi wanted the lower cost for the production. With minority share in joint venture Bonazzi group ignored Indo group request for more investment and quality products.

                        When Indo started losing hope in joint venture due to the difficulties in production and no management power for Mehta was under the “Horns of dilemma” whether to call off the joint venture or to keep convincing the BIFL to make the things right and effective for the both joint ventures BIFL and IBFL.

1.                 Yes, I believe joint venture was not working as it supposed to be for both the BIFL and IBFL. First of all they were facing production problems like defected and low quality products because of interest of BIFL for low production cost. Second is Cultural Clash (bad relationship) India is a collectivist country where if the two companies celebrate with each other, everything is considered in the interest of the both companies which lacked in the situation between BIFL and IBFL. Here all the controls were done by the BIFL under their own interests. Lack of Communication, Trust, Cultural Masculinity, Bad Equipment and Machinery, No equivalent investment form BIFL, and different interests and goals. Lacking of this and differences was obvious that the joint venture was a big fail for both the companies. IBFL wanted to expand their business in the consumer market for cars, which didn’t happen due to BIFL interest in serving their international clients with their products. As the production was low and more expenses due to faulty machineries and equipment none of the interests were served for this reason I believe joint venture was really doing nothing.
2.                 Two sides were fighting because of their own interest of joint venture. IBFL did not had and management power and so their expansion in consumer market, including their commercial market was going down due to the interest of BIFL for serving their consumer in international market. Defected products and faulty machinery played a major role because of low production and customers on both sides were unhappy with both the companies. Both sides were fighting to serve their customers. IBFL was upset about their consumers complaining about lack of supplies, BIFL not Investing equivalent, Faulty machinery and equipment, low production, and no decision power/no communication, whereas, BIFL was focused on low production due to cost. And serving their international clients. Both companies have similar perspective to expand their current business in different markets. BIFL perspective was to develop new clients and give services to Asian market due to declining market in Europe. The main reason for them to transfer their plan to India, they did what they wanted to but, on the other hand IBFL wanted to get their technology and expand their business locally in the consumer market. Lack of communication both sides were fighting because of expenses occurred by faulty machinery and low production.

1.                 Using Hofstede’s model I believe, BIFL, had more individualism, then IBFL due to everything they did was under their own interest like production to distribution of their products in international market. The same way they planned to transfer their plant to India for cost saving and serve their client better fall into achievement oriented. Meantime IBFL wanted to make a relationship and want to give advice about the production and wanted to be in the process of decision making. IBFL was looking for long-term orientation of the joint venture and their clients, while BIFL wanted to serve their clients and make a profit to pay off their debt that occurred by Italy plant. I do believe that IBFL had three successful joint venture before BIFL, for BIFL this was the first joint venture adventure. So the company needs to learn about the difference about culture and how to do and serve business better in the interest of all.
2.                 I think process used to appoint Mehta as CEO was not correct, because it was one side decision from the BIFL. Joint venture is the collaboration between two countries to serve their interest jointly. Which in this state it didn’t happen and there was no involvement of IBFL in that decision. So I don’t think the process of appointing Mehta as CEO was correct. There should be better process possible with the involvement of boards of director from both the parties and electing the right person by comparing different accredited and capabilities of each person equally and naming one as a CEO. With fair chance given to both the companies.

1.                 I think Mehta should have accepted Menon’s invitation to have a cup of coffee with him. Because they would have discussed the better future of the company from both sided and they would have known each other and cleared the doubts from their minds regarding the issue which was causing both parties. Coming from a collectivistic culture I believe it was the right choice to accept the offer of having a cup of tea and discuss the viewpoints of each other which could not be discussed in front of other members of the both companies. Cup of tea would also bring their relationship closer.

1.                 Indo should have done their own research to see if the Bonazzi was good enough for joint venture. They could have done by looking at their history and financial statements. As they play the major role with joint venture because it says a lot about how is the company performing and what are the goals of the company and why they want to collaborate or do joint ventures. Indo should also learn about Bonazzi culture as well as Italy’s culture of doing business. On the other hand Bonazzi should have given equivalent power to Indo group in making decision and giving their point of view to consider in decision making. Bonazzi should give its production to Indo as it’s their land and they know how to make the business successful. On same time Bonazzi should have tracked the status of production and supplies. Also Bonazzi should be loyal to the joint venture with proper equipment and machinery. This would make each company test their relationship and would know if they made a better choice they could have.

1.                 Yes, I strongly believe Mehta should have also reported to the chairman of Indo, because decisions made by him affects to both side of the joint venture companies. On the other hand, he would also get a response or some better decision regarding towards his decision. Involving both companies in and reporting to each other in every decision making process and choices made by involving both the companies would make this joint venture more successful and effective. Companies would also share their interest and make them one goal to follow. Communicating and reporting to each other is best when working in groups or one large enterprise.