Bonazzi Indo Joint Venture: Culture Clash or Pure Economics? Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Bonazzi Indo Joint Venture: Culture Clash or Pure Economics? Case Study Solution

Question 1: Why did Bonazzi and Indo enter into a joint venture? Was there strategic logic in the decision? Please discuss both Bonazzi’s and Indo’s viewpoints.

As before Bonazzi and Indo had come to an agreement of joint venture, the Indian automotive industry was in a robust growth. The Indian economy was growing flawlessly with an estimated growth rate of around 9% and it was also estimated to grow further.

According to ACMA (Automobile Component Manufacturer Association) it indicated the 34% growth from the previous year in automotive manufacturing industry. There had mean foreign collaboration and other joint venture regarding in this industry, however, the Indian government has also been supportive in every way.

This had given Indo an optimistic vision to have growth in its company. Indo already had few joint ventures in past with Japanese companies and also one Korean company. Being the low cost manufacturer and having low cost labor was strengthening.

But besides of Indo being recognized by OEMs in India with strong existence in commercial vehicle segment and had a large market share, Indo had a poor existence and presence in the passenger car market. While on the other hand, Europe had a leading and largest automotive fasteners manufacturer The Bonazzi Group, an Italian company with sufficient market shares in European market in automotive fasteners, bearings and casting.

In 2006, Bonazzi started facing a downfall in French market and it started to lose money with bank debt of over $140 million and faced severe financial stress. Bonazzi decided to shift its French plant to China or India to have a benefit of low cost labor. However, it had a large market share in the passenger car segment.

The conditions of both the companies lead to a joint venture in 2006, with the name Bonazzi Indo Fasteners Ltd (BIFL) of passenger car segment for Indian and Global market being Indo minority and also a joint venture with the name Indo Bonazzi Fasteners Ltd (IBFL) for only Indian commercial vehicle segment having Bonazzi as the minority.

Having a strategic logic behind this agreement for Indo was to avail the opportunity and have a strong passenger car segment for fasteners and also to have an access to Bonazzi’s technology in India. Whereas, Bonazzi hoped to take the advantage of the low cost labor and relocated the French plant to India.

Other than this, Indo was also willing to enter the technical agreement with Bonazzi regarding the bearing industry to give their service to India which Bonazzi had agreed to assist.

Why did two partners who had known each other for many years prior to the joint venture have such a difficult relationship after signing the joint venture agreement? Why was Mehta on the “horns of a dilemma”?

Culture plays a great role in the operation of any organization and company. Especially the joint ventures having different cultural background can lead to misunderstandings and dispute.

Likewise, Bonazzi and Indo were two different cultures, one European and one Asian. Although having great benefits working together they might face various aspects in business which may differ in each other’s decision process or the thinking level.

Initially, both the companies before their joint venture had known each other back in 1997, regarding the technical license agreement for the transfer of the automotive fasteners from Bonazzi to Indo.

Besides this fact, now both the companies were having difficulties in their relationship. The culture differences may even lead to these situations where solutions are difficult to find. The economies of both the countries were different in terms of operation, decisions and evaluation.

Although the French equipments which were transferred to BIFL were beneficial because of the high quality which machinery and equipment had and even the contribution in the equity from the Bonazzi to Indo. But the problem had arise when these machinery could only be operated by the French team due to the complexity they had and also that the equipment were French made.

Bonazzi Indo Joint Venture Culture Clash or Pure Economics Harvard Case Solution & Analysis

They eventually began to have communication barriers and poor coordination between the chairmen. Due to difference in culture, Indo was not aware of defect-free concept which the European was well aware of. Eventually, they started having difference in opinion.

The reason of not having proper and clear agreement before signing the agreement can also be pointed out which led the two companies’ relationship in problems. However, Mehta was “on the horns of the dilemma” because he knew that with or without both the companies together will face a loss and also customer equity in India and worldwide........................

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