International joint venture
Joint venture is one of the preferred international market entry modes by many firms but it suffers high failure rate. Construct a review of literature on how to manage international joint venture successfully.
International joint venture is one of the preferred international market entry mode.
“An international joint venture is a separate legal Organizational entity in which at least two partners that are economically, Geographically and legally independent of each other participate” (Frédéric and Pierre 2006). Many multinational corporations use the joint venture as the market entry mode to enter in to developing countries (young,1994: Mickiewicz , 1986). International joint ventures are popular institutional forms chosen by less developed countries to attract foreign direct investment and knowledge . Through the partnership with the foreign venture it will help in knowledge transfer in terms of technology, it also will create employment opportunities in the local country and grow the flow of foreign currencies (Udo ,Sugata and Arijit 2003).
In an individualistic grown economy joint venture is used as strategic option. An foreign company can not came a open its branch straight away in the local market, so to overcome this barrier the foreign company merge with the local company to form a joint venture..
The main thing about the joint ventures are the foreign companies jointly decide with the local company to create a legal entity to share the ownership, profit or loss and other benefits of the business. Despite a strong understanding between the companies and with huge amount of resources also, the joint venture achieve a high failure rate. This is because of the differences in culture ,strategy planning and organizing , it initially start with differences an result in problem (Bruce ,1988). One of the preferred international market entry is joint venture, the other entry modes are Licensing , Direct Foreign Investment , Internationalization , Franchising and exports. Joint ventures involve two or more legally formed distinct organizations , each of which shares in the decision making activities of the jointly owned entity (Geringer and Hebert 1991 ; Geringer 1988 ). “It is deemed to be an international joint venture when at least one partner’s head quartered outside the venture country of activities, or if the Joint Venture has a greater level of operations in more than one country” (Geringer and Hebert 1991 ; Geringer and Hebert 1989). In the rapidly changing international environment the intense technology and timely competition there are major changes around the world that are political and economical . It is closely examined that joint venture or any other forms of business relates with ownership , performance and control (Hans, Stephen ,. 1997)
The joint venture suffer a high failure rate because its got more than two parent organization. It is reported that 47% of the firms have more than 3 parent firms. A study in the article states that if a joint venture consist of more number of parent company means it will attain failure. (YAPING , ODED , YADONG and MEE-KAU ,. 2007).
The experience of the parent company will influence the joint venture with the company in the developing countries. Essential resources and mutual understanding between the parent companies is important for the joint ventures success. The needed resources and acheived experience of joint ventures parent partner are important to cope the relationship , which leads to trust and ultimate understanding . “Companies should look for a potential partners with joint venture experiences and should have adequate knowledge to provide complementary resources” (Sim and Yunus. 1998).. For example, Bangladeshi firms should expect foreign companies such with appropriate technology, joint venture experience ,overseas marketing knowledge, managerial expertise’s and networks. So as the foreign company will look in the Bangladeshi firm is local market knowledge, cost effectiveness in inputs and past joint venture experience. Market strength and technology and export orientation where other important successful factors for joint ventures . Unlike the developed countries – the developing countries need local parental control and good technology were needed to create its venture to success(Sim and Yunus. 1998).
Kathryn 1988 argues that “Customer Attributes will influence firms abilities to differentiate their product offerings from those of competitors and they will also(1) determine whether sponsoring firms can standardize their respective product configurations across markets (2) grant their ventures much operating autonomy“ . The change in particular partners strategy , choosing of strategy for the joint venture and the action of the competitors must focus during the changes in the venture. And the dynamics of venture’s owner and the partners collaboration must be adjusted to hypothetical changes in the respective strategically need , c apability and success of other owners in the international venture(Kathryn 1988) .
The important and most surprising question is , why do joint ventures fail?. The example is This research is based on a systemetic analysis of a joint venture associating a Brazilian company (local partner), Algar, formerly ABC, with a French company Bull (foreign partner). The joint venture was founded in 1983, initially it was called as ABC-BULL but later it changed it name as ALGAR – BULL, the change in the balance of power took place in 1989.then the partners separated due to situation of subsidiary. Both the companies attain huge profits but the conditions turned to be unfavorable . In the end Bull took over the entire company from to form Bull South America, right form the beginning Bull’s have major rights on the company and more power on decision making process also. The main differences through the joint venture in to dissolution is the cultural factor. It has affected almost everything in that joint venture. Despite its dissolution it is considered to be a successful Joint venture(Frédéric and Pierre 2006 ).
In the previous empirical studies using the meta-analysis it examines the relation between the culture and decision making strategies. The result declares that individualistic cultures prefers a f orcing strategy more over a collective cultures, wherein more likely collective cultures use withdrawing, compromising and problem solving strategies than that of the capitalistic culture (Lung-Tu 2007).
Key factors for managing International Joint venture success are Performance, Human Resource development , Practices based on host cultural characteristics, Quality performance, Training competence, Flexibility and Adaptation , Technological sophistication, Knowledge acquisition from foreign partners, Cooperation between parents, Recourses sharing, Equity sharing, Governance, Political risk in host country these are some of the important key success factors that influence the International Joint venture into success. If there is any misunderstanding or conflict in these issues means it will develop a crack in the joint venture (Michael , Schon and Andreas ,. 2007 ). The individual bargaining power of the partners should determine which of them should bring the particular resources , to cut down the cost (Kathryn 1986 : Beamish , Peter 1997 ).
In another example its HERO HONDA , it is the merge of HERO group of India and Honda of Japan to produce bikes, it is one of the biggest and most profit earning company in the world in terms of motorcycle sales . It is selling more than 1 million bikes per year. And it is ranked 108th in The Forbes 200 most reputed companies list 2006.
Another popular example for the successful international joint venture is Sony Ericsson. The joint venture of this company was establishes on October 2001, it is the joint venture between Japanese Sony Corporation and the Swedish telecom communications company Ericsson to make mobile phones and smart phones. In the insurance industries there are also some emerging international ventures they are in following examples , such as Aviva Life Insurance Company India Ltd. It is joint venture between the Aviva life insurance in united kingdom and India based Dabur company, its Dabur that holds 74%of the stake in the company and it used the brand name of Aviva. In another example Bajaj Allianz Life Insurance Co., Ltd. , it is the joint venture between the Indian Motorcycle company Bajaj and German Insurance Giant Allianz Insurance. The important thing to be noted in this is that global players in the business world are elaborating there channels through the mode of joint ventures, and they are also using there experience in to the business they are involved . Which will result in a success rate . Another awaiting joint venture in India is between India’s Bharti group and the world’s largest retailer Wal-Mart .
To conclude this essay on International Joint venture, it is that the success of any joint venture is within that organization .in the very beginning itself the counterparts should target a goal and should work towards that. The partners of the joint ventures not only should share profit and losses and resources , but they also should be open to share there operational , strategies , technology ,trust , knowledge acquisition from foreign partners , selection of experienced partner and performances. And they should overcome the barriers such as cultural differences , managerial inequalities ,lack of knowledge, selection of inexperienced partner, lack in communication, and political . These barriers should be carefully tackled otherwise the joint venture will end up in failure. Despite the failures in the international joint venture rate is high companies prefer to go for it , because they enter a new market . Thus the international joint venture should overcome the above mentioned odds and barriers to become successful joint venture in the international market .
Udo Broll, Sugata Marjit, and Arijit Mukherjee 2003, ‘FOREIGN DIRECT INVESTMENT, CREDIBLE POLICY: The Role of Risk Sharing‘, THE INTERNATIONAL TRADE JOURNAL, Volume XVII, No. 2 : Pg 165-176
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Frédéric Prevot, and Pierre-Xavier Meschi. 2006 . ‘Evolution of an International Joint Venture: The Case of a French – Brazilian Joint Venture’. Thunderbird International Business Review, Vol. 48(3) Pg 297-319
YAPING GONG, ODED SHENKAR, YADONG LUO and MEE-KAU NYAW ,. 2007 . ‘DO MULTIPLE PARENTS HELP OR HINDER INTERNATIONA JOINT VENTURE PERFORMANCE? THE MEDIATING ROLES OF CONTRACT COMPLETENESS AND PARTNER COOPERATION’ , Strategic Management Journal,. 28: Pg 1021 -1034.
Michael Nippa , Schon Beechler and Andreas Klossek ,. 2007. ‘Success Factors for Managing International Joint Ventures: A Review and an Integrative Framework’ , Management and Organization Review.3:2 2007
A. B . Sim and Yunus Ali ,. 1998.‘Performance of international joint venture from developing and developed countries : An Emperical Study in a Developing Country context ‘. Journal Of world Business / 33(4).
Lung-Tu Lu,. 2007. ‘The Effect Of Cultural Similarity On International Joint Ventures: An Emperical Study’ . International Journal of Management. Vol.24 No.2 : Pg 230-241 .
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Kathryn Rudie Harrigan,. 1986. ‘ San Francisco: new Lexington Press ‘.Order Now