University of Malaya Cross Cultural Conflicts in The Corning Vitro Joint Venture Case Study Question： How have other companies in Mexico and Latin America

University of Malaya Cross Cultural Conflicts in The Corning Vitro Joint Venture Case Study Question： How have other companies in Mexico and Latin

America addressed these cultural divisions in the

recent past?

How should they do so as they go forward

with comprehensive regional Latin American

strategies?

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2. Cross-Cultural Conflicts in the Corning–Vitro Joint Venture
This simulation is designed to develop skills at international negotiation with an emphasis on cross-cultural
communication and negotiation.
Case Summary
During the NAFTA negotiations, many U.S. firms were
concerned about the reduction of U.S. tariffs on flat glass,
which averaged 20 percent, and the perceived competitive
advantages Mexican glass firms would have in the event
these tariffs were removed. In the fall of 1991, in the
midst of the NAFTA negotiations, Vitro S.A., the $3 billion Mexican glassmaker, signed a tentative $800 million
joint venture with Corning Inc. Two mirror companies
were established—Corning–Vitro and Vitro–Corning—
and each company took an equity stake in each of these
joint-venture firms. In addition, the two parent companies
agreed to a series of marketing, sales, and distribution
relationships to support the activities of each of the new
companies.1 Two years later, the joint venture was in distress, and some of the interested parties were suggesting
that it be dissolved. This simulation provides participants
with an opportunity to undertake negotiations designed to
resolve these differences.
Background
Vitro Sociedad Anonima is a 100-year-old Mexican company with roughly $3.5 billion in sales and 40,000 employees. As Vitro positioned itself to take advantage of the
emerging North American market, CEO Ernesto MartensRebolledo described the tightrope the company must walk:
“We don’t want to lose our identity as a Mexican company with a unique culture and relationship with our
employees, but we don’t want to be battered in the world
marketplace either.”2 In 1989, Vitro completed a hostile
takeover of Anchor Glass Container Corporation, and in
1992, Vitro laid off some 3,000 workers, an unusual move
in Mexico at that time, given traditional notions about
labor-management relations and job security.
Corning, an upstate New York maker of glass, traces
its roots back to the mid-1800s. In recent years, Corning
has diversified into fiber optics and other high-technology
applications of glass, ceramics, and composite materials.
During the 1980s, Corning’s business increasingly relied
on sales of fiber optics to telecommunications firms.
These firms were beginning construction of the new infrastructure to support high-speed voice and data transmission. At the same time, sales of household, flat glass, and
other traditional glass products remained important to the
company.
8
NAFTA and Glass3
During the early part of NAFTA negotiations (1989–1991),
U.S. makers of household and flat glass products expressed
concern about their ability to compete against cheaper
Mexican imports, and some even accused Corning S.A.
of unfair trading practices. Guardian Industries Corp., a
Michigan-based manufacturer of float glass—the highquality flat glass used in mirrors, insulated windows, furniture, and automobiles—complained that Vitro, the only
Mexican producer of float glass, was engaged in anticompetitive practices by trying to intimidate a Mexican glass
distributor that was considering buying a product from
Guardian. Vitro exported approximately $120 million in
float glass and related products to the United States in
1990. Other glassmakers argued that even with present U.S.
duties averaging over 20 percent on household glassware
from Mexico, the after-duty prices of the Mexican products
were significantly below those of U.S. producers, owing in
large part to considerably lower labor and energy costs.
In February 1991, the International Trade Commission
(ITC) issued a report on these allegations. Vitro Crisa (an
operating subsidiary of Vitro S.A.) allegedly priced its
glass beverageware at about 20 to 30 percent below that
of U.S. producers in the U.S. market. Vitro Crisa’s lower
productivity relative to U.S. industry, said the ITC, was
offset by considerably lower labor costs (about $1.50 an
hour versus $15 an hour in 1987 in the United States),
which constituted nearly half of the production costs of
the U.S. household glassware industry. The cost of natural
gas, another major production input, was about 15 percent
lower in Mexico.
Problems Arise4
“Vitro and Corning share a customer-oriented philosophy
and remarkably similar corporate cultures.” This was the
characterization of the joint venture offered at the time by
Julio Escamez, a Vitro executive. Both companies had long
histories of successful joint ventures. Corning Inc. had
been an innovative leader in foreign alliances for over
73 years. One of the company’s first successes was an
alliance with St. Gobain, a French glassmaker, to produce
Pyrex cookware in Europe during the 1920s. Corning has
formed approximately 50 ventures over the years. Only
nine failed (dissolved), an impressive number considering
one recent study found that over one-half of foreign and
national alliances do not succeed. From 1985 to 1990,
Corning’s sales from joint ventures were over $3 billion,
contributing more than $500 million to its net income.
Corning enters into joint ventures primarily to gain access
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In-Class Simulations
to markets that it cannot penetrate quickly enough to
obtain a competitive advantage. In addition, both companies were globally oriented, and both had founding families still at their centers. Yet the joint venture became subject to a series of cultural and other conflicts that began
to undermine this vision.
U.S.-Mexico Alliances5
“There are many reasons why corporate marriages between
Mexican and U.S. companies fail,” says Richard Sinkin,
managing director of InterAmerican Holdings, a consultancy based in San Diego, California, that advises U.S.
companies doing business in Mexico. Sinkin says that U.S.
and Mexican companies often get together for the wrong
reasons. Unless the two partners contribute essential qualities to the marriage, the alliance soon founders. The second difficulty is corporate control. “Most Mexican firms
are still run as family businesses,” Sinkin says, “and these
firms are often reluctant to share control with an outside
investor.”
In the case of the Corning/Vitro JV, Corning managers
said that they were sometimes left waiting for important
decisions about marketing and sales because in the
Mexican culture, only top managers could make them and
at Vitro those people were busy with other matters. Vitro’s
sales approach was less aggressive than Corning’s, the
remnant of years in a closed economy, and was sometimes
at odds with the pragmatic approach Corning had developed over decades of competition.
NAFTA and Alliances6
To varying degrees, such cultural issues have plagued many
mergers and alliances with their roots in the North American Free Trade Agreement. “Mexico initially appears to be
the United States except that people speak Spanish,” said
Harley Shaiken, a labor economist who often works in
Mexico. “That’s just not the case, which everyone finds out
in the short term rather than the long term.” The trade pact
may have created false expectations about how much like
the United States Mexico has become. In discussing cultural differences, it’s difficult not to slip into stereotypes
about “mañana”—Mexicans who move at a slower pace.
But what the gap separating the two business cultures really
amounts to is a different approach to work, reflected in
everything from scheduling to decision making to etiquette.
In the Corning venture, the Mexicans sometimes saw
the Americans as too direct, and Vitro managers, in their
dogged pursuit of politeness, sometimes seemed to the
Americans unwilling to acknowledge problems and faults.
The Mexicans sometimes thought Corning moved too
fast; the Americans felt Vitro was too slow.
Cultural differences generally, said Richard Sinkin, the
corporate consultant, are “the No. 1 problem for doing
business in Mexico.” That may be an exaggeration, but it
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9
underscores the difficulty of transferring a culture across
the border. Sinkin’s own experience bears that out. He is
bilingual and often works in Mexico but finds that it isn’t
always easy to get paid because the Mexican view of contracts differs markedly from the view commonly held in
the United States. In Mexico, the terms of a contract “are
kind of ideal things that you strive to achieve,” Sinkin said,
“while in the U.S. they are law.” In general, corporate style
is more formal in Mexico than in the United States. Titles
are common, and nearly everyone is “licenciado,” which
loosely refers to having any professional training. Forgetting the honorific can be seen as a serious insult.
In Mexico, executives can expect the unquestioned loyalty of employees, but outsiders are often viewed with
mistrust. Horace E. Scherer, director general of Hobart
Dayton Mexicana, the Mexican subsidiary of the Hobart
Corporation, said his salespeople must often make four
trips to complete one transaction because of that lack of
trust. To sell the company’s scales and other equipment,
a salesperson starts with a visit to the client’s top official.
If a sale is made, a representative of the company itself
must deliver the goods because the customer won’t accept
delivery from DHL or some other service. If all the papers
are in order on delivery, the company representative is
told to come back on an appointed day to present an
invoice, in person; if the invoice is accepted, an appointment is made for the rep to return to receive payment.
Many companies that have formed joint ventures end
up creating their own new corporate culture, taking bits
and pieces from each side. At Vitro-Whirlpool in Monterrey, assembly-line workers have a long tradition of taking
what in Mexico is referred to as “el puente,” or the
bridge, which commonly extends a formal holiday into a
mini-vacation. When, for instance, Mexico’s version of
Mother’s Day fell on Tuesday, May 10, workers did not
show up on Monday, bridging the gap to the holiday. (If
an American holiday falls on a Tuesday, of course, absenteeism will be high on Monday, but in Mexico the custom
is far more entrenched—and can even shut a plant down.)
The company now allows workers to take the “puente,”
but only if they agree to work an extra hour each day for
eight days beforehand.
Because their corporate conversations can be filled with
so many feints and pleasantries, Mexicans often use memos
to convey dissatisfaction. When Labatt’s (the Canadian
brewer) Mexican manager, Noel Trainor, decided to cut
back employees’ lunch from two hours to one, he had to do
it in a memo that all 30 employees had to sign. Trainor said
he abided by a strict holiday policy, priding himself on the
degree to which his compatriots had been able to adapt to
the expectations of the United States and seemingly only
half aware of the degree to which he had compromised. “We
only give what we are obligated by law to give,” he said,
“and of course half a day on Mother’s Day.”
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Skill-Building and Experiential Exercises
Financial and Commercial
Concerns7
over whether to stay in or dissolve the JV. Groups 1 and
3 should consider the following:
Added complications emerged from the relatively strong
peso, increased overseas competition, and a reconsideration of marketing strategies by both companies. The joint
ventures suffered from the different administrative practices of the two companies. “Managing from two countries was more complicated than we anticipated,” said
Corning. “There were different (management) structures,
styles and accounting systems.” Corning said the different
needs of customers in the United States and Mexico complicated the integration of sales and distribution. Corning’s U.S. customers, especially the large discount stores,
expect the timely and regular delivery of products packaged in a certain way; Vitro’s Mexican customers are less
demanding.
In 1992, Corning-Vitro had sales of approximately
$700 million, and Vitro-Corning achieved turnover of
about $230 million.
1.
2.
3.
Issues for Decision
As a result of cultural clashes, failure to integrate complementary product lines, and disappointing sales, both
Corning and Vitro are contemplating dissolving the joint
ventures. Within the two companies, however, there are
those who support maintaining the relationship, and others who oppose it. Corning and Vitro must first decide
on whether they want to remain in the joint ventures and,
if they do, under what conditions. If they decide to dissolve the relationship, they must negotiate the terms of
the dissolution. If they decide to remain in the arrangement, some changes must be made to address the growing problems.
Simulation Instructions
You will be assigned to one of four groups.
The groups are ad hoc. Each group represents an adhoc committee appointed by the CEO of each company
to make recommendations about the future of the alliance.
The groups’ initial positions can be characterized as
follows:
1.
2.
3.
4.
Vitro—supports keeping JVs
Vitro—against keeping JVs
Corning—supports keeping JVs
Corning—against keeping JVs
Negotiation 1
The initial negotiation occurs within each company.
Hence, Vitro Groups (1 and 2) discuss their differing positions, and Corning Groups (3 and 4) exchange their views
with each other. Each pair of groups (1y2 1 3y4) should
decide whether their company wants to remain within the
joint venture or dissolve it. Each pair of groups has
45 minutes to negotiate within the respective companies
The logic and original rationale for the JV.
How that logic may still hold.
How the JV could be made to work better.
Groups 2 and 4 should consider the following:
1.
2.
3.
What caused the JV relationship to sour.
Why the partner has not lived up to expectations.
What the terms of dissolution should be.
Each company agrees on a position to bring forward to
the partner. This position need not necessarily be a demand
to maintain the joint venture or to dissolve it; rather it could
be a contingency laying the conditions for maintaining the
relationship, or demands for how it should be dissolved.
Once each company has decided on its position, representatives from each Corning group (two to four representatives
total) will meet with their counterparts from the Vitro groups.
Negotiation 2
Each company must decide, collectively, through negotiation, whether to remain within the joint venture or dissolve it. The representatives from each company have
60 minutes to reach some resolution. They must consult
with the remainder of their company throughout the negotiation to ensure support for the outcome. The main issues
for consideration include:
1.
2.
3.
4.
5.
6.
The logic and original rationale for the JV.
How that logic may still hold.
How the JV could be made to work better.
What caused the JV relationship to sour.
Why the partner has not lived up to expectations.
Whether the JV should be terminated and, if so,
what the terms of dissolution should be.
Ultimately, issue 3 or 6 must be resolved. Any solution, whether to maintain the JV, dissolve it, or some
hybrid approach, should be comprehensive and address
these elements:
•
•
•
•
Financial structure: Terms for financing existing or
new ventures under the arrangement or payments for
dissolution of the relationship.
Governance: Board, management, or other top-level
changes in ownership and leadership under the present
or revised relationship.
Marketing: Agreements about marketing, distribution,
and sales relationships either under the current
arrangement or in any new structure.
Competition/cooperation: Changes in the way in
which each company operates in the other’s territories
or markets.
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In-Class Simulations
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Table 1
Hofstede’s Cultural Ratings for the United States and Key Latin Countries
United States
Mexico
Canada
Argentina
Brazil
Colombia
Peru
Venezuela
Spain
Portugal
Power
Distance
Uncertainty
Avoidance
Individualism
Masculinity
40
81
39
49
69
67
64
81
57
63
46
82
48
86
76
80
87
76
86
104
91
38
80
46
38
13
16
12
51
27
62
69
52
56
49
64
42
73
42
31
Source: Geert Hofstede, Culture’s Consequences: International Differences in Work-Related Values
(Beverly Hills, CA: Sage, 1980).
Questions for Discussion After
Conclusion of Simulation
1.
Compare your solution to the joint venture’s problems with the actual outcome. What is different or
similar in the two approaches?
2. How would you characterize the Mexican and U.S.
culture in terms of Hofstede’s scheme (see Table 1)?
In what ways were the cultures similar and in what
ways were they different?
3. Compare Corning-Vitro’s problems to those of some
of the other international joint ventures described in
this simulation. How were they similar, different,
and more or less challenging?
4. How have other companies in Mexico and Latin
America addressed these cultural divisions in the
recent past? How should they do so as they go forward with comprehensive regional Latin American
strategies?
Source: © McGraw-Hill Irwin. This simulation was prepared by
Jonathan Doh of Villanova University as the basis for class discussion.
It is not intended to illustrate either effective or ineffective managerial
capability or administrative responsibility.
■ Notes
1.
2.
3.
4.
5.
6.
7.
“Glassmakers’ Complaints Aired in NAFTA
Hearings,” LDC Debt Report/Latin American
Market, September 9, 1999, p. 10.
Nancy A. Nichols, “From Complacency to
Competitiveness: An Interview with Vitro’s
Ernesto Martens,” Harvard Business Review,
September–October 1993, p. 162.
“Glassmakers’ Complaints Aired in NAFTA
Hearings.”
Anthony Depalma, “It Takes More than a Visa
to Do Business in Mexico,” New York Times,
June 26, 1994, sec. 3, p. 5.
Leslie Crawford, “Anheuser’s Cross-Border
Marriage on the Rocks: Modelo Deal Is the
Latest U.S.-Mexican Partnership to Be Soured
by Disagreement,” Financial Times, March 18,
1998, p. 46.
Depalma, “It Takes More than a Visa.”
John Holusha, “Corning to Buy Northern
Telecom Assets,” New York Times, December 16,
1993, sec. D, p. 4.

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