Joint ventures are a form of aid for accessing emerging markets

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Joint ventures are a form of aid for accessing emerging markets, resources, knowledge & capabilities. In simple words joint venture is an alliance between two or more firms as per the terms and conditions negotiated before forging the alliance to enter a new market to capitalize on opportunities. The concept of a joint venture is two or more than two individuals or commercial entities coming together to achieve a common goal by contributing resources and expertise. When the firms are entering into a joint venture across border with a firm located in other part of the world it is called International Joint venture. International joint ventures are more complex then domestic joint ventures. In International joint venture several factors like new law, government polices, and business practices, social aspects, cultural aspects etc add to the complexity of its nature and make it more dynamic albeit fragile.

Today's due to increased globalization companies are able to move freely across borders as compared to a few decades back. Firms are targeting overseas markets which offer promising growth prospects. The trend is increasing because these markets have not yet been explored fully by major global players and these unexplored markets respond very enthusiastically to the arrival of new organizations. Sustainability and development of competitive advantage are among the factors encouraging the concept of International Joint [1].

International expansion is a challenging undertaking and in order to complete this undertaking successfully firms resort to different market entry strategies [2] [3] [4] [5] [6]. To go global firms usually adopt joint venture vehicle. Joint ventures are useful in sharing expertise, infrastructure and market access of the partners with whom the joint venture is to be formed for e.g. Acquiring licenses, contracts and other alliances. International Joint Ventures deliver stronger results as the expertise, licenses and resources are pooled in by the partners and the best of the both side is brought forward, especially the market knowledge of the local partner helps to direct the JV in the right directions [7].

International Joint Venture is alliance between two different companies operating in the same business but operating in different countries for creating an independent commercial entity by pooling in resources [8]. Joint Venture can be further elaborated as two or more firms trying to achieve a particular target with help of each other resources which if done alone would be expensive and would not bring desired output due to lack of expertise and resources. Joint venture enables setting and achieving targets which other wise are impossible to conceive. Firms extending themselves for a Joint Venture or an International Joint Venture desire increased profits, continuous sustainable growth and competitive advantage. Joint Ventures are the most suitable vehicle to achieve these targets [9]

 

The above mentioned definitions state following factors are at the core of an International Joint Venture

1) More than 2 firms

2) Purpose and

3) The level of Interdependence

 

Joint ventures there are usually two firms involved but more than two firms can form a joint venture according to the dynamics of the business at hand [9]. Factors like nature of business, government rules, size of business, expertise required to complete the venture, social aspects etc all dictate the number of partners required to for a JV. Wallace further mentions independence is a crucial part in the mechanism of a Joint Venture. Companies coming from different country, background are influenced by different work culture, management, goal, values. Matching it these factors or finding compatibility between two cultures is crucial.

 

Common goals, mutual objectives are at the core of a Joint venture formation. These objectives should be shared by partners and these objectives should serve them well in terms of growth and increased competitive advantage. If these objectives are not met the joint venture might end abruptly inflicting losses and debts [9]. One critical point that helps to maintain the gravity in a joint venture is interdependence. Interdependence requires partners to help each other in attaining their goals. Partners involved in the process of a JV cannot achieve their goals alone and have to move with their partners to realize their ambitions [9]. If one partner becomes self sufficient the partnership might not work properly as the dependent partner might get neglected due to lack of his importance.

 

But the very basic requirement of the joint venture i.e. necessity of multiple entities coming together to form a commercial alliance makes it vulnerable to conflicts and failures. When multiple heads come together there is increased possibility of friction due to non cooperation and lack of understanding.

 

 

Stage 1- Formation

Factor consideration and decision making are at the core foundation of the International Joint Venture. International Joint Ventures are very complex form of organizational structure [16] and often are very tough to be implemented. It is their complexities which makes them prone to failure. Companies which fail to understand or realize the need for a International Joint Venture mostly confront extreme situations such as failure  [17] [13]. It is very important for the would be partner to sit down and discuss the requirement and the need to form an International Joint Venture. Failure to discuss details of forming an International Joint Venture leads to failure and loss of resources and opportunities [18] [19]. For beginning the partners should come to an agreement on 'whether to enter into an International Joint Venture' if yes how will it help to achieve their goals.  If the return on the investment in an International joint venture outweighs risks associated with it then the partners should move ahead. But if the risk involved and investment costs are higher than the projected return other alternatives should be sought [8]. One critical point that might help to overcome operational problems and reduce friction is forming an alliance with an understanding and cooperative partner. A cooperative partner or partnership enables a partnership to be an effective learning process and in the end delivers desired results [2] [20] [6] [21].  Stiles (2001) say that a strategic partnership fails mostly due to selection of wrong firms or people as partners. Culpan (2002) too backs this argument by stating that the process of partner selection is very critical for a prospective joint venture [8].

 

 

 

Stage 2 - Development:

In International Joint Venture where to locate is a million dollar question. When the joint venture is based in country of one of the partner it is positive because the local partner has local market knowledge and control advantage. When the knowledge is shared in the partnership it helps the partnership to move towards its objectives and whole joint venture team benefits. An international joint venture succeeds when the partners are actively involved in the key decisions especially in the early stages of the process [13]. Therefore in order to maintain smooth functioning and trust the board of directors must comprise equal of representatives of the partners.

 

Stage 3- Implementation 

Vision, strategy, values and mission are the critical components in an International Joint Venture [23].  In an International Joint venture the vision mission, values and strategies are designed keeping in mind the nature of the business local requirements as well as the requirements of the partners. Every International joint venture has its own unique dynamics. There is no generic formula or structure to fit the Joint venture requirements. Therefore the policies, practices and strategies to implement them are need to be craved from scratch. These new policies should depict the partners (a) vision, mission, values, culture, structure, strategy; (b) labor market; (c) need for global integration with parent(s) such as for knowledge transfer; and (d) differences between the country cultures of the parents and the International Joint Venture [24]. 

 

 

 

Stage 4: Advancement

Knowledge transfer, learning from partners, learning across geographical barriers etc all form the part of the development stage. In this stage the partnerships are further enhanced by restructuring the partnership goals according to the results achieved so far. Depending up the results the companies formulate the future of the joint venture. The partnership relation evolves into more mature and trustworthy alliance [6].  In order to avoid failure learning, cooperation and adjustment by the partners are the key factors [11] [21]. In the development phase both the organizations involved in the joint venture keep gaining knowledge, experience which can be useful in their operations in future either for local market or international market [6] [21]

 

Culture 

Culture can be termed as differentiation of a member of one group or category from another. [29]. Human mind is accustomed of trained to use particular pattern of analyzing, behaving, reacting and thinking just like computer software.  But the major difference between the computer software and human mind is that humans act in social environment where it interacts with other human beings. The mental programming can be divided into several categories such as gender level, national level and regional level. [30]  

 

Organizational Culture and the national culture are the two types of cultures that strongly influence the International Joint Venture. International Joint Ventures are prone to friction, complexity and break down in communication and low performance mostly due to the influence of national culture on the behavior of the management cadre [28].  Similar pattern can be seen in organizational culture; friction between two entities can harm & undermine the goals of the joint venture.

 

International Joint Venture has a direct cultural influence at the national level and organizational level. The organizational structure of the International Joint Venture is affected by the national culture and by other major institutions in the country where the operations are based. These factors influence the structure of the organization and its management style [25]. As mentioned before compatibility of the partners with each other determines the success of the venture & cultural compatibility is perhaps most important [8]. Partners forming an alliance in International business come from different geographical regions and are influenced by their own national culture though this might seem appealing this cultural difference if not made compatible can result in failure of the joint venture. Several factors like investment patterns, preferences performance expectations entry and are influenced by the culture. [26]. To make their cultures compatible a third hybrid culture can be formed by accommodating elements from the two original cultures to which the partners belong. This in return can ensure that the cultural compatibility becomes an advantage to the venture rather than a liability [26]. The importance of the third culture can be seen when the International Joint Venture is jolted by the cultural shock deriving from non compatibility of the cultures. If the new culture is forcibly imposed on the people alien to it it might fire back in form of under performance and non cooperation from the management & thus might lead to failure [27]. 

 

In short we can say that cultural influence is one of the important aspects determining the success and failure of a Joint Venture. Both national and organizational cultural factors define the management structure. Steep variation in the national & organizational culture can result in conflicts amongst the partners and result in loss to the International Joint Ventures. Depending upon the compatibility of the cultural background of partner's success of the International Joint Venture can be determined. There's not doubt that partners from distinct culture have tough time in accommodating each others ambitions, goals and values but if their cultures are combined it may ensure smooth cultural compatibility [28]. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conclusion:

Joint ventures are useful to commercial organizations for various reasons. International Joint Ventures help companies to overcome the uncertainty & it facilitates setting up business in the new market. Larger projects, different markets, new locations are the reasons why International Joint Ventures are formed. Most critical part of a International Joint Venture is to verify the feasibility of the project and secondly check compatibility of the company towards prospective partner. Most International Joint Venture's fail because the partners do not have much in common. In order to make an International Joint Venture successful the most important factor that came up in this paper are the cooperation, coordination and understanding of the partner towards each other. Cultural influences namely national culture and organizational culture too can make or break a International Joint Venture. In order to avoid the national and cultural shock the partners need to understand each others values, strengths weaknesses and most importantly they need to coordinate with each other. Sharing each other resources, expertise will enable the firms to be together for a long time and will make the International Joint Venture profitable.

 

 

 

 

 

 

 

 

 

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