Factors Driving The Partnership Between Putzmeister GmbH And SANY Heavy Industry Co. Ltd

PESTEL Analysis

PESTEL Analysis

Factors such as political, economic, social and technological play an important role in collaboration. Various factors drive the partnership between Putzmeister GmbH and SANY Heavy Industry Co. Ltd. To explore these factors it is important to analyze these factors using PESTEL- Analysis. According to Bloomberg Online (2012), the main external environmental factor that facilitated partnership between Putzmeister GmbH with SANY Heavy Industry Co. Ltd was financial crisis of 2008-2010 that made to Putzmeister production to remain underutilized.  In addition, the financial crisis caused Putzmeister to perform dismally in the market leading to low production capacity. Putzmeister is a producer of concrete pump that is mostly used in construction industry as explained by Economist (2010) during the financial crisis of 2008-2010 most of financial institutions was affected. These financial institutions were basically dealing with mortgage for construction industry. As a result most of construction equipments remain unsold, Putzmeister was one of the companies that were affected with this crisis and its production capacity was underutilized (TunnelTalk, 2012). The financial crisis was caused by combination of policies that encourage home ownership leading to easy loan access through loaning by financial institution. The overall result was declining credit availability that affected the whole construction and financial sector (Fleisher & Bensoussan, 2007).

Benefits 

Merger of Putzmeister GmbH and SANY Heavy Industry Co. Ltd is couple with some internal benefits. Some of the internal benefits are fiscal advantages, growth and increase competitiveness. Firstly, merger of the two companies offers tax advantages as the company can built user tax shield thereby increasing monetary leverage and utilization of alternative fiscal benefits (China Construction Machinery Business Online, 2017). Secondly, the merger also comes with growth benefits as the two company join to form a larger company. According to Kang & Sakai (2000), one of the reasons for the company merger was growth aspiration of Putzmeister. After financial crisis that affected Putzmeister, the company needed to grow leading to merger. Thirdly, as the size the resultant partnership increase, the companies involve increase their competitiveness in the construction machinery. Moreover, the two companies Putzmeister and SANY are now more competitive than their competitors (Liu & Woywode, 2012). The SANY company after merger has economies of scale that reduce cost giving the company competitive advantage and raised buying power or longer production runs. In addition, merger reduces financial risk associated with managing company financial risk.

Synergies 

The value and performance of merger between Putzmeister GmbH and SANY Heavy Industry Co. Ltd is most likely to yield greater value as compared to the combine value of each single company (Bryant, 2012). Firstly, the merger creates wider market for both Putzmeister GmbH and SANY Heavy Industry Co. Ltd as Chinese term product made by Putzmeister as “made in German” due to the good reputation of Putzmeister company. The merger opens market outside china through Putzmeister and within China through SANY Heavy Industry Co. Ltd. Secondly, the merger potentially lead to bundling international purchasing for products produced by both companies (Human Synergistics, 2011). This implies that products SANY’s products that include construction machinery can be sold together with concrete pumps from Putzmeister as a package increasing market share for both companies. In addition, product bundling increases purchase for products since the company can give customer discount. Thirdly, there are economies of scale in production due to increase the size of production as both companies are major producer of concrete pumps. This reduces cost of production for the whole production system in SANY (Lynch, 2012).

Merger and Benefits

Type Of Partnership

The type of partnership between SANY and Putzmeister is merger and acquisition. In this type of partnership SANY acquire Putzmeister and the two organization merger to form one organization though Putzmeister remained independence it remain SANY’s brand (Gancel, Raynaud & Rodgers, 2002). According to the partnership deal between SANY and Putzmeister, SANY will produce concrete pumps within the Chinese market while Putzmeister produce concrete pumps for the market outside China. The management team is for both companies are not integrated without involvement of Chinese company in the day to day activities of Putzmeister. SANY develop supervisory board for Putzmeister, the annual plan and long-term strategy of Putzmeister is align with SANY. In addition, both SANY and Putzmeister partnership also include some mutual strong position and selected projects collaborations for synergies (Braiker, 2004).

Risk Associated With Partnership 

Collaboration between Putzmeister and SANY though has some promising advantages and benefits, the partnership is also associated with some risks that may include conflict of interest, negative reputation impact, implementation challenges and loss of autonomy (Dhanani, 2003).  

Conflict Of Interest

Firstly, SANY may have its own interest or hidden agenda for the partnership that contradict interest of Putzmeister and this may threaten the partnership. Conflict of interest also can result from the aspiration of one company to exploit the other company or exploit the partnership. In addition, conflict of interest in collaboration can also be due to differences in culture of the two companies.

Negative Reputation

Negative reputation impact is another risk that is most likely to result in the merger of Putzmeister and SANY. According to Needle (2004), Putzmeister products are attractive to customers owing to its reputation and quality products. There is also perception that Chinese companies produce cheap low standards products. The merger between Putzmeister and SANY is most likely to make products from Putzmeister termed as low quality due to acquisition by SANY. This reputation risk is denied by SANY chairman indicating that SANNY is a different company from other Chinese companies that produces cheap products.

Implementation Risks

Another partnership risk is implementation challenges that result from implementing of strategy develop by SANY to supervise activities of Putzmeister. One of the agreement between SANY and Putzmeister that guide the partnership is alignment of plans and strategy according to SANY, this may cause drastic implantation challenge since the operational segment and company culture differs between the tow companies (Papa et al. 2008). This challenge however is limited with low involvement of SANY into the affairs of Putzmeister company activities. Since the supervisory board monitors activities of Putzmeister implementing its strategies potentially poses challenge (Mahindra & Mahindra 2007).

Potential Risks

Loss Of Autonomy

Loss of autonomy is also a partnership challenge that may result from partnership between Putzmeister and SANY. The partnership deal between Putzmeister and SANY is to enable Putzmeister to grow in its production though this may not be the case due to merger with SANY.  Some of the strategies that Putzmeister had as a single company may be thwarted due close monitor from SANY being its parent company. Currently Putzmeister does not operate autonomously as all its strategies are realigned with that of Putzmeister (Bloomberg’ 2012).

Selection Of Partner 

Selection of the right partner is an important factor in partnership or collaboration. Some of the factors that determine the partnership selection between SANY and Putzmeister are different from the partnership between SANY and Swiss industrial chemical producer SIKA. SIKA and SANNY produce different product though partnership resulted in production of concrete spraying system that combine ideas from both sides (Marquis & Tilcsik, 2013). Collaboration between SANY and Putzmeister on the other hand involve similar products. SIKA produces chemicals as compared to Putzmeister that produce similar product with SANY. In addition, the partnership between SANY and Putzmeister is merger and acquisition since SANY obtained full ownership of Putzmeister company (Cogman & Tan, 2010). SIKA and Putzmeister had mutual trade agreement that and the

National Cultures

National culture plays an important role in the success of partnership and in the operation of both Putzmeister and SANY. When assessing partnership the national culture for both Germany and China are important aspects of corporate culture (McGuire, 2003). Germany is one of the European leading technological exporters. Germany has national culture of free market that allows free business operation in the day to day activities. China on the other hand considers strong relationship before making deals making several meetings before meeting the partnership objectives. Moreover, most of Chinese partnerships do not require high emotional expression especially during meeting to seal the deal. In addition, the interaction of cultures has impact on the nature of partnership (MofCom, 2011).

Impact Of National Culture

The impact of national culture is evident in partnership between Putzmeister and SANY Germany’s motto is unity, justice and freedom (Tata, 2005). Germans do not like ambiguity and uncertainty therefore work in procedure and precision. For partnership between Putzmeister and SANY to succeed Germans normally aim to decisive outcomes. Chinese culture on the other side establishes relationship contrary to Germany culture that is based on achievement (Marsh, 2012).  German technological culture has direct impact on the partnership since Putzmeister is a good machinery manufacture can truly fit with Chinese culture of technological culture.  Germans has little emphasis on dressing code with as compared to Chinese culture that emphasis on white and black color (Hofstede, 2001).

Impact of National and Corporate Culture

Corporate Cultures

Corporate culture entails beliefs and behaviors that determine the interaction and management or employees interaction.

Putzmeister

Corporate culture within Putzmeister includes empowerness, openness, care and inspirational environment.  Being a German company Putzmeister is always open for dialogue with more emphasis on the open dialogue (Schrodt, 2002). The management of Putzmeister encourages its employees so as to create a good working relationship for objectives. Environmental sustainability is another objective of Putzmeister as it develops environmental sustainable. Putzmeister create working environment that is inspirational to both employees and customers that are spread throughout the world. Taking care of customer’s need and taste is one of the primary objectives of Putzmeister (Hofstede & Hofstede, 2005).

Potential Impacts

Putzmeister’s openness to dialogue is the key to success negotiation and signing of deal with SANY. Putzmeister is always open to dialogue that aim to strength the relationship with SANY. Putzmeister attractive environmental culture enables the company to attract external investors and other stakeholders. The good employees management relationship has much effect on the future of partnership with SANY since the company is able to create harmonized working environment for management from SANY (Moffett, Stonehill & Eiteman, 2012).

SANY

SANY’s corporate culture involves innovation, respect, collaboration, integrity and society oriented. Firstly, SANY is one of the companies that are concerned with technological innovation that controls the company’s research and development (Dr. Reddy‘s Laboratories 2006). Secondly, SANY uphold respect for customers and employees. One of the guiding principle that is common about SANY is its ability to excel in relationship marketing. According to Hanemann & Rosen (2012), Chinese firm concentrate on building relationship with other relationship as the core values. This relationship is expected to last for a long period of time as compared to other companies. SANY is strengthen by its drive to produce quality products that changes the world. Finally, the vision of SANY is to build a first class enterprise in China and the world (Sany Heavy Industry, 2012).

Potential Impact

SANY’s technological aspirations can potentially much the technological investment that Putzmeister has show of the years. Much of SANY’s research is very important for product development (Schneider & Barsoux, 2003). The company’s core value that is based on relationship building and respect for both customers and employees is important during negotiation especially outbound negotiations. In the event of disagreement SANY normally exploit its good relationship skills to ensure that the Putzmeister dialogue nature is used. The company’s corporate ability to conduct market research and innovation is readily good for the Putzmeister research advantage (Schein, 2004).

It is important to note that the Chinese company SANY divided the market into domestic market and global market. SANY sell concrete pumps in the domestic market in china while Putzmeister sell concrete pumps to the rest of the world. The partnership therefore has drastic effect in the Chinese exchange rate and the international market (Ulijn, Meijer & Duysters, 2010). Putzmeister being a German company and SANY a Chinese company both companies deals in foreign currencies. Effect of exchange rate movement is also felt in the stock market in each country as these two companies play a significant role in the local market. Depreciation in the value of Euros and Yuan has significant effect on cost of Putzmeister before sealing the deal. Depreciation in the value of Euros and Yuan makes the cost Putzmeister cheaper hence SANY would pay less. On the other hand appreciation in the value of Euros and Yuan increases the cost of Putzmeister hence SANY would pay more to acquire Putzmeister (Modaff, DeWine & Butler, 2011).  Putzmeister and SANY can also agree on fixed contract that protect the deal from any effects of depreciation or appreciation of currency value for each currency used in the transaction of the deal. Moreover,  fixed contract reduce the uncertainty caused by fluctuation in the exchange rate movement hence time lag between changes in cost of Putzmeister and exchange rate. To understand the effect of merger between SANY and Putzmeister is critical to explore operational, transactional and translational (Reuters, 2012).

Operational Exposure

The operation of the SANY is expected to cause fluctuation in the exchange rate movement since the Chinese company took over the other Putzmeister company. More of Chinese yen is expected to use in most of the operation of the two firms. This implies that German Euros is expected to deprecate as compared to Chinese Yuan that will appreciate. The operational exposure takes into account the effects of exchange rate movement on the operation of the partnership deal between Putzmeister and SANY.

Transactional Exposure

The transaction between Putzmeister and SANY is much affected with movement of exchange rate, either depreciation or appreciation in the value of Euros or Yuan (Fortune, 2012). It is more important to realize that effect of exchange rate on transaction between Putzmeister and SANY is effective when both companies have settled on the home currencies. Before sealing of the deal between Putzmeister and SANY settling on the currency to use is influenced with the exchange rate. Depreciation in Euros make the deal favors Putzmeister being that their currency is in Euros. For instance, depreciation of 26% the deal cheaper as compared to appreciation of the same percentage that makes the deal equally expensive (Williamson & Raman, 2011).

Translational Exposure   

Exchange rate movement is translated to the price of machinery or products of the companies involve in partnership. The fluctuation of the exchange rate due to the fluctuation in value of currencies that are used, which is German currency and Chinese currency translates to the price of assets in the market. The depreciation in either of the currency leads to low prices of products made by the Putzmeister and SANY (Fratzscher, 2009).

There are many challenges of doing business internationally that evident from the module. Some of the challenges I have come to appreciate in doing business internationally include differences in the business culture, fluctuation in the exchange rate and unfavorable business environmental factors.

Cultures Challenges

Difference in national and corporate culture for various varies from one organization to another or from one country at another. National culture dictates the dressing code, negotiation or language that is used in international business (Thomas, 2008). For instance, language culture for one country as national culture can act as barrier when doing business internationally. Corporate culture of one company on the other had influences interaction of that firm with other farms around the world. The vision, mission or aspiration of a particular company is most likely to be different from another company. This variation in corporate culture present challenges in partnership and post-partnership operation of the two partnering companies. This implies that beliefs of different organizations differ from another organization. Finally, different in business cultures is the root of conflict of interest that is common in international business (Dobbs & Gupta, 2009).

Business Environmental Challenges

Business environmental factors such as financial, economic or political issues present challenges in doing business international. Financial crisis in the international platform is challenging success of international business. For instance, financial crisis of 2008-2010 had drastic impact in the performance and production of some construction machinery producers such as Putzmeister leading to dismal performance (Ravasi & Schultz, 2006). Other financial issues such as depression in the international economic state affect international business organizations significantly. Geopolitical environmental conditions also affect regional market and international business purchasing power. Lecture notes for this model present internal and external environmental factor that affects partnership in the international.

Exchange Rate Challenges

Fluctuation in the exchange rate movement presents positive and negative effect on the international business. Depreciation and appreciation of currencies in the international market lower cost of business or increase cost of business. The expert lecture notes give a wide insight into the possible impact of upward and downward movement of exchange rate in the international business collaborations. Exchange rate presents challenges that are critical in determining cost of business or cost of assets. The value of currency in the international business is challenging in settling business deal. Financial crisis in the international market is tightly connected to the exchange are and influence partnership (Marquis & Tilcsik, 2013).

Personal Experience 

The knowledge on the various aspects of international business as presented in the expert knowledge has direct influence in my future international business negotiation, international collaboration and decision making. International business negotiation applies various factors to negotiate the deals in the international platform. The knowledge on environmental factors such as financial situations in the international market is important for my business negotiations to yield good results.   I will use theories on exchange are fluctuations to determine international business collaborations. In addition, data on the movement of exchange rate is important in determining the cost of assets of companies during sealing of deals. Before deciding on the right partner to collaborate with, various considerations are made based on economic conditions and international business cultures.

In conclusion, doing business internationally especially international business collaborations is influence by different factors. Partnership between Putzmeister and SANY was influence by internal and external environmental factors such as financial crisis and desire to grow. Exchange rate and culture are other factors that influence the partnership and other business collaborations. I will use knowledge I have gained in lecture for this module to negotiate or make decision for collaboration.

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Bloomberg’s Stock Quote & Analysis: Sany Heavy Industry Co., Ltd.