Presentation of Martinez Construction Company

The company was founded in Barcelona in the mid 40s and registered growing profits for decades due to
its reputation and the quality of the provided services. It experienced a decline in contracts and this led to
acknowledging the dependence of Martinez Construction Company on the local economic conditions.
Strong evidence pointed out that the family business could have continued if an international expansion
took place. The best opportunity seemed the Eastern European market, influenced by the recent collapse
of communism, opening of markets in that area, cheap work force and raw materials. After a thorough
research, Diego Martinez, the president and son of the founder of Martinez Construction, came to the
conclusion that the acquisition of an existing company from the Treuhandanstalt (THA) worlds largest
holding company, would be the best option. A reason for this was the fact that the construction company
did not have the resources needed for a Greenfield operation. Also, it could not have been considered as a
serious competitor in the international market for construction. Juan Martinez, Diegos brother in law
and the manager of the Martinez Constructions branch in Barcelona, was appointed as negotiator with
THA, while Diegos nephew, Miguel, was the projected manager of the acquisition in Germany.
Presentation of Treuhandanstalt
It was initially created in the German Democratic Republic with the purpose of finding private buyers for
approximatively 13500 business and 15000 parcels of real estate. THA sold companies internationally and
matched existing companies with potential buyers. What mattered the most in conducting the business
was the speed of the sale. The companies with which THA negotiated were required to pay attention to
certain elements: price of acquisition, guaranteeing work places for local employees and the method used
for improving the economic activity.
THA found a match for Martinez Construction Company Konstruktion Dreizehn, a company located in
Leipzig. Miguel and Juan were to deal with the negotiation process regarding the German acquisition.
Opinions

Two generations of

Rumors

East Germans did not

Concrete facts

Well-established construction company

local services had

have the same concept

in Eastern Spain. Founded in Barcelona

done little to prepare

of work, or the same

in the mid-1940s.

Martinez

incentives, as did West

Construction for the

Germans.

Quality of service ensured growing

profits for decades

future.

Recent decline in contracts

Collapse of

Growing awareness of the dependence

communism and

the business has on local economic

subsequent opening

conditions

of new markets in

Growth of the family business depend on

Eastern Europe

expansion into the international

provided what

marketplace

Opinions

Rumors

Concrete facts

seemed like an

Cheap labor and raw materials

excellent opportunity

Purpose of the THA was to find private

for expansion.

buyers for some 13,500 businesses and

Best approach to this

15,000 parcels of real estate that had

venture will be

been previously owned by the German

through the
acquisition of an
from the

companies with buyers

THA had insufficient or no information

about the financial positions of the

Construction lacked

companies it was supposed to sell

The firms wishing to purchase properties

necessary to risk a

through the THA were initially evaluated

Greenfield Operation.

on the basis of financial soundness.

An alliance with

Second, they were evaluated on potential

other German

employment opportunity. Next, they

companies would not

were measured according to the cost of

allow Martinez

restructuring to the buyer. The speed of

Construction to

the sale was, however, the most

establish itself as a

important issue to the THA.

Price was the main aspect of the sales

the international

negotiations + guaranteeing jobs for

Construction market.

present employees and arranging for the

Difficult getting

upgrade and improvement of the

acquainted with the

companies)

Germans

Martinez

serious competitor in

(The primary job of the THA was to sell

the companies and to match existing

the resources

existing company
Treuhandanstalt.

Democratic Republic

Match for Martinez Construction, an

Felt pressured by the

existing construction firm, Konstruktion

THA representatives.

Dreizehn, located in Leipzig, Germany

The Germans were all

Germans decided to compromise by

business. They didnt

offering a phased contract, which made

seem to have time to

Juan more comfortable with the

get to know Juan

situation, but felt lost without the

personally: Rush and

technicalities represented in the original

urgency to complete

contract

the sale was the focus

The final contract stated that the original

Opinions

Rumors

of their approach.

price would be reviewed in two years,

Juan had expected

and the contracted parties would

some sort of flexible

recalculate it based on new and

agreement.

presumably more reliable data

Appreciation of the

concerning the true value of the firm

way the German

Company had employed approximately

negotiations were

350 workers inside the German

organized.

Democratic Republic (GDR) and they

Frustration resulted

quickly convinced Miguel that human

from the

resources would be crucial to the

unwillingness of

recovery of the company

some employees to

The THA had reduced the workforce to

actively participate in

100. Miguel and his team estimated that

the formulation of

50 employees would be sufficient

ideas and

Concrete facts

Concerning the companys financial

implementation of

position, and it was clear that the figures

new procedures and

were far from what Martinez

policies.

Construction had been led to believe

Added to the lack of

Strict environmental and employee

initiative were a fear

protection regulations forced large

and distrust of

investments in plant modifications.

management.

Further, other costly projects that had

hot been foreseen during the negotiation
process required attention

Cash flow problems were beginning to

arise, and this threatened the very
existence of the company

Re-evaluation of the contract was

specified after two years

Problem 1: dependency on local business environment

Cause: certain loss of contracts
Effects: decreasing profits, and in the long run - firing employees, lower salaries, negative impact on
reputation of the company and of its leaders

Solutions: Expand to the international market seems a solution. With the reunification of Germany and
the collapse of Communism, a lot of new markets have opened and it would be a great opportunity for the
construction company.
Effects of solutions: Lower salaries and lower prices for the raw materials. They could expand by
spending less money that can be really valuable for the company and be a standard construction company
at the International and more importantly first in Europe.
Optimal solution: international expansion
Problem 2: difficulties regarding the attempt to expand internationally (i.e. communication)
Cause: the differences between the two cultures regarding doing business (i.e. Spanish people do not
care about being late, about authority and hierarchy. They want to trust the people first by talking to
them, have fun with them and finally, speak about business without entering in all the details. On the
contrary, Germans separate business and pleasure because they are more reserved, the hierarchy is really
important to them and the details and terms of contracts must be studied and done perfectly)
Effects: problems regarding communication and misunderstandings. For any terms of the contract there
will be a fight because of the cultural dimensions that are really different between the two countries. The
Spanish managers cannot understand the way Germans are doing business and are not pleased by the way
they are welcomed in the country. The THA representatives presented Juan an already prepared contract,
which was considered by the Spanish party as unsuitable as it lacked the financial analysis. They managed
to reach an agreement a phased contract, benefiting the Spanish, but making the Germans feel
uncomfortable, as this new agreement did not have technicalities. The fact that Juan arrived 15 minutes
late bothered the German party and made them feel nervous. Juan was not in his element when his
counterparts disliked the idea of showing him the city as they were more focused on the business itself,
rather than the relationship between them.
Solutions: The people in both cultures should read more about the Hofstedes Cultural Dimensions to
know how the business works in the other country and learn about the differences between them. They
would have to decide between moving forward with the business, but modifying the contract after 2 years,
and shutting it down.
Effects of solutions: if they decide to continue with the business, they will reach a compromise, they
will get to understand the differences and learn how to work around them, thus managing to increase the
revenues and profits. On the other hand, if they come to the conclusion that ending the agreement is the
best solution, they could end up registering losses, wasting resources and not expanding internationally,
thus remaining dependent on the local economic conditions.

Optimal solution: it is better for the Spanish to go on with the contract and modify it after two years,
because they already paid a lot with the investment, the study of the market and the trip. They also spent a
lot of time finding the company and keeping in touch with THA.