 Hi students, we are discussing international joint ventures and in this topic we are going to discuss a case study on the importance of cross-cultural management in international joint ventures. This is the case study about Beijing Lufthansa Center Company Limited. This is a joint venture between a German company and Chinese government. The objective of this joint venture was to establish a logistical center for people coming from different parts of the world to China. China opened up its borders in 1978. They were not open to the rest of the world but in 1978 they made up a policy to open up their borders in 1978 and welcome the international community. Then because they wanted to welcome the international community and particularly the western countries, that is why and because you know that the Chinese culture is very much different from the western culture, even the way they live, the way they eat, the way they interact with each other, that is way different than the western culture. So even their living apartments, their hotels, their architecture, you have seen that those cone structures and those canopies, that is so much different than the western architecture. So that is why in order to create a place where people from the western world, from the rest of the world, they can come and they can stay there, they can find things which are required for living, so shopping center and a place like hotel, apartments and all that. So that kind of a logistical base was required to be built and developed in Beijing particularly because Beijing is the capital of China and that is where the things started to take flight from. So in 1978 the Chinese government opens up its borders and this contract was signed in 1986. So this is a German company, Duish Lufthansa AG and on the other side it is the government of China. So an international joint venture was established to create a multi-functional service center and to serve as the logistical basis for international travelers. This Beijing Lufthansa center is still present in Beijing and it has got three main elements, three main parts of it, one is a shopping center, the second one is a hotel and the third one is an apartment complex. So it is a huge facility which is developed and based, developed and created in the western style so that people from the international community, they can come and stay there and they can live there and they can then move to the rest of the country and take flight from that particular logistical base. So this is a picture of one side of that complex which is the Kempinski Hotel and you can see this is something which is very much exactly like the western style architecture and the facility looks like something which is very much familiar with which we are familiar and this is the internal interior design of this complex and you can see that it is built according to the emerging and new trends of architecture and not something which looks culturally myopic. Alright so we are going to talk about the cross-cultural management issues in this international joint venture. So this joint venture was the contract was signed in 1986 and it was launched in 1992. This joint venture first of all what had to be done was to select a management team. Now the contract required that equal representation from both the countries so equal representation from the German and the Chinese government was required in the management team. The Germans, they set the criteria for selecting the people very differently from the Chinese people. The German members were required to show technical abilities, industry know how, understanding of the Chinese culture and language. So it was objective, performance based, performance oriented selection of the German members while on the other hand Chinese culture they are very much different in selecting and at that time particularly they had a very different culture and the things that they valued were status, important contacts and informal relationships within the administration and the government. So this is the way to work in China, like in Pakistan as well, that your informal contacts are in the administration, you can go and tell someone to do my work, so that is your job. Similarly in China the culture was the same, now they are getting westernized slowly. So Chinese, they valued these things that your status and your important contacts and if you are in the administration and in the government, if you have a good greeting with your people, they consider you an important useful member whereas the German company considers those people useful, whose technical abilities and industry know how, that is high. So collaboration in this kind of cultural differences was a difficult task, although they had the same common interest that they wanted to establish a multifunctional service center and they wanted to people from all over the world to come and stay there and take it as a logistical basis, but when you are executing the smaller parts of a larger purpose, people tend to get myopic about their own perspective. So there were a number of things which led to conflict, for example there was a conflict on whether they should go for foreign or local suppliers in which the Chinese government wanted to go for cost reduction whereas the Germans, because they are particularly very much quality conscious, they wanted to go for quality, the Germans wanted to go for foreign consultants who had more technical knowledge, who were more expert in their fields whereas the Chinese government they wanted to go for local consultants, similarly need of expatriates was highlighted by the German managers and members, therefore on these basis, on these elements, negotiations had to take place between the German members and the Chinese members and these negotiations they were time consuming and that means it would affect the performance or the success of the project. On the aspect of decision making, the contract stated that the general manager would be responsible for the day-to-day operations and general manager was supposed to be a German person but along with that, the contract stated that the general manager is going to be supported by a deputy who is a Chinese. Supported by a Chinese means that whatever the general manager had to make, the Chinese deputy would try to manipulate that decision, he would create obstacles in it, he would raise questions in it and therefore the general manager who had the power to operate the day-to-day operations, due to this role of the deputy, his powers were limited. So due to this, the general manager could not take decisions and decision making was also slowed down. So collaboration was slowed down and decision making was slowed down. So it turned out that the loyalty aspect of the people coming from two different cultures played a difficulty role. Basically the German managers, they were more loyal to their own culture and to their own organizations and the Chinese managers who were coming from the Chinese government, they were more loyal to the Chinese government rather than being loyal to the international joint venture which was supposed to be a multifunctional service complex. So they were not able to let go of the values and culture and traditions and the way work is done. They were not able to let go from the Chinese side. Similarly, Germans, they were not able to let go of their own values and culture. So that is something which posed a lot of difficulty and when people they come together from two very strong different cultures and have got loyalty with their own organizations although loyalty is something which is really good but it posed a difficulty in carrying out the objective of the international joint venture which was different from the objectives of the companies or the organization from which the people of the IJV they were coming from. So this is something which needed to be taken care by the human resource managers. If the human resource managers had been given a strong and focused position in that particular joint venture they would have been able to create a collaborative environment first of all and then move ahead with the joint venture. Nonetheless, the joint venture because it was a project and not an ongoing company the project was completed successfully and the Beijing Lufthansa Center was opened up in 1992 but a number of cross-cultural issues they emerged that created difficulty and that could have been solved better if human resources and human resource managers were given more due importance in this particular enterprise.