Introduction Blue Ridge Spain is a joint venture established between an American fast food chain and a Spanish agricultural firm, Terralumen. Terralumen contributed the most to Delta’s success in foreign markets. After 15 years of a successful joint venture, Costas was shocked to find out that new owner, Delta, wanted to end the partnership despite of the joint venture’s profitability. Issues and Analysis Cultural Issues Cultural differences, as related to doing business, come into play here.
Significant cross cultural conflicts between parents of different nationalities paved the way for the dissolution of the joint venture between Delta and Terralumen. In a Board of Director’s meeting, the American-Spanish joint venture partners could not work together or agree on common goals and policies, or resolve problems. The Hofstede Model(Appendix A) has demonstrated that individuals living in a particular country tend to share similar values, and that they bring these values to the firms for which they work.
The stark contrast of cultural values between managers of Delta and Terralumen make it difficult to ensure the success and the longevity of Blue Ridge Spain. The European Regional Director, Yannis Costas, is of Greek nationality. According to Hofstede, Greece is high on power distance and high on uncertainty avoidance. As a Greek, Costas values the solid interpersonal relationship and trust which he and Francisco Alvarez had built over the years in trying to foster a successful joint venture. Costas was often employed to solve conflicts and mend damaged relationships.
He also questioned the ethics of his company’s strategy to secretly achieve the upper hand in buyout negotiations. Alvarez, representing Terralumen, is from Spain. He shares many similar cultural characteristics with Costas, including patience and mutual respect. This explains how Costas and Alvarez have come to establish solid friendship and cooperation throughout the joint venture. They both understood the intangibles of cultures, relationship and business. Delta was represented by Mikael Sodergran and Geoff Dryden. Sodergran was from Finland and Dryden was born and raised in the US.
Hofstede shows that both Finland and USA are high individualism countries where personal decision and opinions are considered very important. Both Sodergran and Dryden have a strong work ethic that emphasizes short term orientation with quick results. They wanted a more rigorous and aggressive growth from Blue Ridge Spain for immediate returns. On the other hand, Alvarez and other Blue Ridge Spain managers were pretty content with their current growth rates and they protested on Sodergran’s rapid expansion plan. Personal relationships are less important for Sodergran and Dryden.
The fact that Delta hired a VP without any background in restaurant management demonstrates that American firms place higher importance on specialized skills rather than on experience or seniority. Clearly, the two parents do not understand each other’s goals, capabilities and behavior. They failed to renegotiate future goals and development plans in response to environmental changes, which is key to sustaining the joint venture. The key consideration for this case is whether or not the relationship between Delta Foods and Terralumen is worth repairing.
Each party must decide if they want to attempt to mend the relationship and try to make it work, or if they are better off going their separate ways. Delta must consider the cost of the buyout as well as the possibility of losing most of its managers from the Blue Ridge Spain stores who were brought in by Terralumen. They also must consider their weak international experience, and whether or not the consultants’ recommendations carry more weight than the opinions of the Terralumen management team that works extensively in the market and feel the growth projections are too aggressive.
For Terralumen, they must consider if it is worth their time to continue a venture outside of its primary business and if they have the resources to buy Delta’s shares. They also must consider if it is possible to continue without Delta, given that the Blue Ridge name belongs to Delta. Each of the main players also has choices to make. Player Perspectives For Francisco Alvarez, he has always maintained a personal stake in the relationship. He helped cultivate the joint venture from its inception and must now choose the best direction for his company.
Terralumen’s main industry is agriculture, and this venture was a means of experimenting by taking the business in a new direction. Increased, rapid restaurant expansion would move away from the key business and is perceived as too risky for a high uncertainty avoidance culture like Spain’s. Terralumen is also family-owned, so it does not have to deal with the pressures of short term gains that a public company like Delta foods must. Alvarez needs to try to fix the relationship, but also plan a separation strategy. For Mikael Sodergran, he was hired to apply Delta’s strategy and expand the business.
Delta’s philosophy has always been against joint ventures, and he was working on dissolving this venture by any means necessary. Going forward, he must decide the best approach to ending this venture. He must also be aware of how his actions impact future joint ventures in Spain or elsewhere. Actions such as not paying their share on a loan in order to default the loan will not be viewed kindly by other companies. He not only lacks experience in the restaurant business, but also lacks understanding of how his actions are perceived by others.
In high context cultures, he needs to concentrate on building relationships and not separating himself. His lack of understanding of the Spanish culture was surprising given that he spent three years in Greece, which has a similar culture. He needs more extensive International Business training to obtain a better understanding of different markets and cultures. His actions will hurt Delta’s chances in some international markets unless changes are made. For Yannis Costas the decision to be made was related to determining the best way to end what was once an amicable partnership.
He had developed relationships over many years with the management at Terralumen, and desired working toward a peaceful conclusion. Costas has extensive international experience and a great understanding of foreign cultures. Based on his knowledge and experience, he has a hard time agreeing with Delta’s philosophy against joint ventures and also their reliance on external consultant’s opinions over experienced managers that work in the markets. Delta’s limited international experience and need for short term gains are not a good fit for a person like Costas, who prefers to cultivate relationships and work toward long term goals.
Costas may need to seek other employment opportunities and find a company with an international plan better suited to his personal ideology and experience. The Spanish Marketplace Delta had become a dominant force in the United States in the snack foods and soft drink market place. When Delta had purchased Blue Ridge Restaurants in 1996, Blue Ridge was the largest and fastest growing fast-food chains in the global economy. The recommendations from the outside consultants for European expansion had determined that there was a substantial opportunity for additional growth in Spain.
They had indicated that there was a potential of 1,165 additional restaurants between the years 2000 to 2004 in France, Germany, and Spain and Spain by itself had 500 possible locations within its own borders. This is considered excellent growth in terms of units. The question becomes what strategy should Delta utilize to realize this expansion. Blue Ridge and Terralumen agreed to a plan in 1998 that reflected an acquisition of 256 locations by the year 2004. This was based on the Joint Venture methodology that had been the successful strategy used prior to that point.
The risk vs. reward scenario would play out in a significant fashion. If Delta foods could abandon this strategy and simply grow through acquisition, the number of locations would increase to a level that would only be restricted by the available startup capital of $760,000 per location. This would be the reward side of the equation. The risk piece becomes the casualty of this business if it can’t be successful by acquisition, if the cultural requirements are such that the customer base will not support this effort due to the lack of local content and local behavior.
The hubris of the expansion plan would neglect the required due diligence to address the customer needs. The Delta business model requires a larger return on investment (ROI) then there was in the past, and higher than Blue Ridge was willing to commit to. Additionally, this increase on the time value of money by Delta would also not support the Joint Venture methodology since it is very time intensive. Blue Ridge was agreeing to the number of acquisitions based on the development time required to properly address the Joint Venture.
Due to the risk side of the business equation, and the despite the growth potential by acquisition, Delta would be ill-advised to proceed in this manner and attempt to appease the cultural requirements of the customer base with this methodology. Delta should augment their business plan to accept the ROI based on the Joint Venture approach and perform a market feasibility study to determine what regions within Europe and Asia could be conducive to growth by acquisition and remain successful.
This hybrid strategy could address the complete European Market Place. Conclusion: Joint Venture Dissolution Blue Ridge’s strategy from 1974-1979 was one of “shoot, ready, aim” as they sales grew over 96% annually and franchises were established based on foreign company requests without assessing local markets. As they delved into rapid international expansion, local partnering paid off in many countries, but there were also major errors in judgment resulting in Blue Ridge retreating from France, Italy, Brazil and Hong Kong.
Lessons were learned, however, and knowledge was gained with regard to successful market entry. Blue Ridge was sold to Delta (a soft drink and snack company) in 1996 – a company with no international success, and a focus on aggressive growth through acquisition. Delta had distaste for the time-consuming and less direct nature of joint ventures. Delta clearly had no understanding of how to do business in Spain, how to hire and manage employees in Spain, how to work with Spanish culture and how to navigate real estate transactions.
The hiring of Sodergran instead of the promotion of Costas for the new regional VP position may have been a political maneuver by Delta to dissolve the joint venture arrangement with Terralumen. Delta, being focused on meeting targets and projections through rapid growth and less interested in what actually works in Spain, was not satisfied with the rate of return in Spain and thought they could and should do better. Unfortunately, the hired consultant projecting expansion growth was not familiar with Spanish culture and the way of doing business in Spain, or the projections would have been less aggressive.
Terralumen would not have even been able to come up with the resources required to achieve the plan the consulting firm came up with. Unfortunately for Terralumen, they were not armed with “American business school cleverness” to argue the points the consultants made, and it was not in their nature to be adversarial and throw projections and statistics back at management…but perhaps a counter–proposal including a feasibility analysis, SWOT analysis, and details regarding the resources (both financial and human) required for such expansion would have led to a more reasonable compromise on projections.
Given that Terralumen is content with the current growth rates, and Delta’s management team knows this, Sodergran’s focus on the contract and desire to allow the relationship to take an adversarial turn is further evidence of Delta’s strategy to dissolve the partnership (and if not, points to a level of cultural ignorance that does not bode well for Delta doing business in Spain). Delta’s ethnocentric attitude and refusal to budge on negotiations justifies dissolution of the joint venture. It does not make sense for Delta to buy Terralumen out and continue operations in Spain, considering Delta’s business goals, needs and aggressive targets.
They do not have a handle on how to operate in the Spanish market, and should leave. That being said, the Blue Ridge name may be a valuable part of the business (and the name belongs to Delta). Terralumen’s financial situation is such that they are unlikely to pay Delta enough to satisfy them, but if Terralumen is able to buy Delta’s shares, this is ideal. Terralumen has the cultural understanding and business acumen to take the business in a new direction; they have done all of the legwork in Spain and are closest to it – surely they can continue in a successful vein.
If the name is lost as part of the dissolution, Terralumen is in touch with the Spanish marketplace and can create energy around a new chain, whereas Delta has no hope of succeeding with their current business practices and unrealistic targets. If Terralumen is not in a financial position to provide Delta with what they require, Delta should obtain as much cash up front as possible, and structure a 5 year loan. As Terralumen experiences success, the debt can be paid. References http://www. geert-hofstede. com/hofstede_united_states. shtml Appendix A: Cultural Analysis
There were four major cultural perspectives involved, relating to different management styles and cultural nuances. This created significant conflict among key personnel. The business needs of each partner were very diverse, as was comfort level with growth and the manner in which business is conducted. Delta wants to see higher profits, faster, and Terralumen does not need to see the aggressive goals met. All of this added to the clash between partners. Geert Hofstede Cultural Dimensions for Greece, Spain, Finland and United States. The scores for Greece are PDI 60, IDV 35, MAS 57 and UAI 112.
