In or Out: the Corning/Vitro Joint Venture
As Vitro positioned itself to take advantage of the emerging North American market, CEO Ernest Martens Rebelled 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. ” In 1989, Vitro completed a stile 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 is an Upstate- New York maker of glass that traces its routes back to the mid-sass In recent years, Corning has diversified into fiber optics and other high technology applications of glass, ceramics, and composite materials. During the 1 sass, Corning’s business increasingly relied on sales of fiber optics to telecommunications firms. These firms were beginning construction of the new infrastructure to support higher-speed voice and data transmission. At the same time, sales of household, flat glass, and other traditional glass products remained Important to the company.
During the early part of NONFAT negotiations (1989-1991), U. S. Makes 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 high quality flat glass used in mirrors, insulated windows, furniture and automobiles implanted that Vitro, the only Mexican producer of float glass, was engaged in anti competitive practices by trying to intimidate a Mexican glass distributor who was considering buying a product from Guardian.
Vitro exported approximately $120 millions in float glass and related products to the United States in 1990. Other glass makers argued that even with present U. S. Duties averaging over 20% on household glassware from Mexico, 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 of 1991 , the International Trade Commission issued a report regarding these allegations, finding that although. Vitro Crisis (an operating subsidiary of Vitro S. A. ) allegedly priced its glass beverages at about 20% to 30% below that of U.
S. Producers in the U. S. Market. Vitro Crisis’s lower productivity relative to U. S. Industry, said the TIC, was offset by considerably lower labor costs (about $1. 50 an hour versus $15 an hour in 1987 in the U. S. ), which constituted nearly half of the production costs of the U. S. Household glassware industry The cost of natural gas, another major reduction input, was about 15% lower in Mexico. CORNING,VITRO JOINT VENTURE In the fall of 1991, Corning and Vitro announced the creation of a Joint venture agreement in which two corporate entities were established: Corning Vitro in the U. S. ND Vitro Corning in Mexico. Corning would own 51 percent of Corning Vitro in the United States while Vitro would own 51 percent of Vitro Corning. When the transaction was completed, each company would own 100 percent of its domestic consumer glass business through its own activities combined with the share of the two JP entities. In addition, Vitro merged its tableware glass divisions with Corning’s nonuser goods cookware and dinnerware divisions, and Corning transferred its Brazilian laboratory and ophthalmic products assets and business to Vitro Corning. Vitro paid $131 million to Corning in the deal.
The two companies were to become an “economically integrated entity,” with mutual technology, trademark, copyright, and licensing arrangements, as well as ongoing research and development activities. Under the agreement, the two firms would market their combined product lines with well established distribution operations. Corning specialized in cookware and Vitro in tableware. Corning was accomplished t melting glass, while Vitro was expert in molding it. The companies intended to combine product lines based on where each company had technical leadership, and they began to swap technology to enhance their respective capabilities.
In marketing, Corning Vitro intended to add Vitriol’s products to the existing Corning line. This would allow Corning to expand sales of its tableware glass to Mexico and their technical know how, the two firms would be in a better position to deal with competitors in the combined North and South American markets as these two regions grew more economically . Where production lines or marketing efforts overlapped, they planned to rationalize operations and adjust facilities and capabilities accordingly. PROBLEMS ARISE “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 Sesames, 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 alliance with SST. Goblin, a French glassware, to produce Pyrex cookware in Europe during the sass. Corning has formed approximately 50 ventures over the years. Only 9 had 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, Scorings sales from Joint venture were over $3 billion, contributing more than $500 million to its net income. Coming enters into Joint ventures for two primary reasons, which are best explained through examples of its past ventures. The first is to gain access 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.
Culture Clashes During the first two years of the JP, the relationship was hurt by constant cultural clashes. Corning managers 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. Vitriol’s sales approach was less aggressive; the remnant of years in a closed economy, and this moieties clashed with the pragmatic approach Corning had developed over decades of competition.
The Mexicans sometimes saw the Americans as too direct, while 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. Although both companies were aggressive global concerns, these cultural differences manifested in a number of visible and obvious ways. Corning’s offices in upstate New York are in a modern glass enclosed building, while Vitriol’s headquarters in
Monterrey, often thought of as Mexico Pittsburgh, are in a replica of a 16th century convent, with artwork, arched ceilings and antique reproductions. Time it took to make them. Vitro and other Mexican businesses are much more hierarchical, with loyalty to fathers and patrons somehow carried over to the modern corporation. As a matter of either loyalty or tradition, decisions are often left either to a member of the controlling family or to top executives, while middle level managers are often not asked their opinions. If we were looking at a distribution decision, or a customer decision,” said a Corning executive, We typically would have a group of people in a room, they would do an assessment, figure alternatives and make a decision, and I as chief executive would never know about it. My experience on the Mexican side is that someone in the organization would have a solution in mind, but then the decision had to be kicked up a few levels. ‘ Financial and Commercial Concerns 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 U. S. 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, while Vitriol’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. ISSUES FOR DECISION As a result of cultural clashes, failure to integrate the complementary product lines, and disappointing sales, Corning and Vitro are each contemplating dissolving the joint ventures. Within the two companies, however, there are forces that support maintaining the relationship, and others, which oppose it. Corning and Vitro must each first decide on whether they want to remain in the Java, and if so, under what conditions.