International Management 8th Edition by Fred Luthans,Jonathan Doh

Exercise 22

A successful, medium-sized U.S.manufacturing firm in Ohio has decided to open a plant near Madrid, Spain.The company was attracted to this location for three reasons.First, the firm's current licensing agreement with a German firm is scheduled to come to an end within six months, and the U.S.manufacturer feels that it can do a better job of building and selling heavy machinery in the EU than the German firm.Second, the U.S.manufacturer invested almost $300 million in R D over the last three years.The result is a host of new patents and other technological breakthroughs that now make this company a worldwide leader in the production of specialized heavy equipment.Third, labor costs in Spain are lower than in most other EU countries, and the company feels that this will prove extremely helpful in its efforts to capture market share in greater Europe.
Because this is the manufacturer's first direct venture into the EU, it has decided to take on a Spanish partner.The latter will provide much of the on-site support, such as local contracts, personnel hiring, legal assistance, and governmental negotiations.In turn, the U.S.manufacturer will provide the capital for renovating the manufacturing plant, the R D technology, and the technical training.
If the venture works out as planned, the partners will expand operations into Italy and use this location as a jumping-off point for tapping the Central and Eastern European markets.Additionally, because the cultures of Spain and Italy are similar, the U.S.manufacturer feels that staying within the Latin European cultural cluster can be synergistic.Plans for later in the decade call for establishing operations in northern France, which will serve as a jumping-off point for both Northern Europe and other major EU countries, such as Germany, the Netherlands, and Belgium.However, the company first wants to establish a foothold in Spain and get this operation working successfully; then it will look into expansion plans.
In what way will the culture of Spain be different from that of the United States? In answering this question, refer to Figures 4-5, 4-6, and 4-7.