The authors opinion
Introduction: This case study looks at the problems that Nolan and Studds had in the process of agreeing to a joint-venture and talks the decision of proceeding with the jointventure. In the end the author writes about personal recommendations with which the case study could have worked. Reasons to go International: The first question that arrises is whether Studds should be involved on International Markets in the first place. The second question is why they chose Nolan as a joint venture partner? At the end of 1994 Studds was the company with the biggest market share in motorcycle helmet sales and production in their national market. However their market-share was declining as helmets became mandatory and consumers shifted towards other cheaper helmets. It is uncertain whether the reason the go international was only proactive, or if there were also some minor reactive elements such as an increase in national competition on their lower helmet lines.
More likely it was the growth opportunity or expansion on international markets and the expectancy of total international market growth itself. Studds wanted to expand in developed markets and compete with the world leaders.
One way of getting what they wanted, was to partner with one of the world leaders on the international market. Going on in a joint venture with a big player to increase market-share internationally is undoubtedly a positive aspect for firms. Nolan and Bieffe were the biggest players on the international market at the time having a market share of over 50%. Nolan was the bigger one of these two in regards of sales, personal and investment. Nolans name had a brand value Studds was similarly big, but did not compete big on the international market. Furthermore, Studds was the only indian company which exported internationally and an establishment in the world market would be a positive thing to have, before any other indian company decided to enter international markets. Concluding, the decision of going international was a right decision. However I think, that the decision of the partner was more based on numbers, brand name and distributors than on the actual compatibility with the company.
What options were available to Studds at the end of the February 1995 meeting? At the end of February Studds had the option to choose a joint-venture between 3 major helmet companies. Nolan, Bieffe and Fimez. Studds could have also chosen to not make a joint venture at all and investing completely alone on international markets.
Additionally Studds could have skipped developed markets such as Europe and Japan and focus on undeveloped markets around India. It is interesting, that they did not focus much on these regions. Consumers in undeveloped areas did not require helmets this, so they did not have to technologically advance themselves so fast. Also due to their low production costs they could easily enter these markets. From the three companies to choose from, Nolan was by far the biggest company with a large net of distributors and technical knowhow. However Studds decision to partner with Nolan was based on size and on numbers. Not on compatibility. Another option that Studds could have done was a non-equity arrangement with Nolan, Bieffe or Fimez. Maybe an arrangement between knowhow and share would be an alternative option.
What are the Intercultural issues involved in the relationship between the two partners?
According to Edward Halls theory of high-context and low-context cultures, both companies come from high-context cultures. Companies in India and in Italy come from a background, where business was just as important as the relationships gained out of the business. Trust and longterm boundaries always played a big role in business. Coming from this background, an international joint-venture is difficult to make without intercultural issues. The company from oversees is always considered as an outsider, even though the philosophy of a joint-venture is actually to create something together that has an equal equity between partners.
Both companies did not know each other well enough. They came together once for the setup of the letter of intent. There was no trust or other relationship between the companies and that is the reason why the joint venture had so many difficulties. When Nolan inserted new legal clauses to the agreement, the distrust from Studds came to appearance. The fact of adding new clauses have been seen as an act of distrust from Nolan by Studds.
It might just have been a low-context act (high explicitly) that did not fit in the highcontext culture of both companies. This lead to an escalating situation, in which the distrust between both companies rose and in the end nobody was happy with the result. Another intercultural issue was the lack of research in the different cultures from both parts. Nolan, for example did not make enough research to know how business is done in India. If they had known that, they would not mistake the briberies to local authorities for cheating from Studds part.
What would have been your recommendations to Studds or Nolan?
My personal recommendations to Studds or Nolan would be the following:
I believe that the secret of the joint venture does not lie only in numbers and choosing the right partner. It is uncertain whether Nolan was the right partner with the right distributors, and right amount of willingness to invest. The reason why this partnership agreement had so much trouble was because there was a lack of trust and this could have been worked on. Business relationships are like personal relationships. They take time and need a lot of work to develop into something greater. I would recommend both partners to slow down with the arrangement of their joint-venture. Both companies were racing to get quick profits and left all other factors out of the way. There was no time for relationships and for trust to be built.
Another issue that they need to work on is the control issue. At the moment, Studds was offering nearly all the workforce in India and also had more people on the board of director, including the Chairman. It is obvious, that Nolan should be involved more in this joint-venture, since it was an equity-joint venture. If Nolan should be involved in the day-to-day operations, I tend to doubt. Both companies need to focus on their strengths and let part of their control go to others.
Letting Studds do the operations in India and letting Nolan do all the marketing and finance seems like a good solution to me. Both companies at the time had a little over 150 workers and were relatively small companies. An equity-joint venture in this case means that a failure would have a large impact in both companies. Control of the company is next to the trust in the daughter-company, the next big issue that they need to work on.
Originally, Studds management style was very autocratic. Everything that managers could not decide, was directed to the CEO. There was never a horizontal power distribution in the company. The same management-style could be found at Nolan. Managers cant be expected to change so quickly. An equity joint-venture requires lateral power-distribution on many levels. However, this needs to be learned by the employees and takes to time develop.