Problems In Joint Ventures Commerce Essay

As the whole world is running in the race of globalisation, avoiding the concept of joint venture is not favoured by business world. Joint venture is the contribution of two or more organisation for achieving a particular goal. Working in joint venture at international level is not that easy because of cultural barriers.

Hofstede (1993) believe that extend of business onto the worldwide step bring the concern of nationwide and area difference to the front. “There is something in all countries called ‘management’, but its meaning differs to a larger or smaller extent from one country to another” (Hofstede, 1993).

In this report it is mentioned negative and positive views of joint venture in clothing sector. And also describe the solution and suggestions for a successful joint venture with the help of pest analysis.

In joint ventures when a business enters into international market many factors comes up and it is necessary to remind these factors before starting any business internationally.

The main factors are:-

Cross-cultural awareness.

Sound knowledge of political and legal system in other countries.

Varied negotiation skills

Multi-language skills

Global strategic consciousness i.e. Early mapping of opportunities and threats involved

This report also gives information about the different problems and issues which China zone can face in future in the developing of the business. With the help of Professor Geert Hofstede the 5d model of cultural dimension is also mention in this report.

And with these help China Zone can think and take proper decision in joint venture and also in the future.

TERMS OF REFERENCES

As a business consultant in Radhe Consultancy our firm provides services from the last 25 yrs to the clients who are looking for joint ventures in different fields like trade, industry, services, manufacturing, distributorship, housing, hotels, hospitals, amusement parks, HR and any other viable venture.

My office is Located in California, USA. This is easily access by all transports.

Our clients are in all over the world. Our main market is Africa, Middle East, Asia, Europe and China.

And my client is a China company :- China Zone

Established in 1999, manufacturer and exporter design development and production of wool clothing located in china main land with convenient transportation access. All of the company products comply with international quality standard and are greatly appreciated in a variety of different market through out the world.

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Have over 800 employees, boast an annual sales figure that exceeds US 10000000 $ and currently export 85% of our products to worldwide places. Our well equipped facilities and excellent quality throughout all stages of production enable us to guarantee total customer satisfaction.

China Zone is a big manufacturing and export house in china but now China Zone wants to enter in United States to expand his business and also in USA there are many big opportunities for the growth of the business. With the reference of his business partner he selects our consultancy to know more about the country in which they want to invest.

OVERVIEW OF THE SITUATION

In joint ventures mainly two or more companies are involved and shared their resources, rewards and risks and other following points which are clearly mentioned in agreement.

The reason why joint ventures are necessary is:-

Business expansion

Development of new products or moving into new market

Particularly overseas

Also there are many other problems are there when anyone want to do business internationally.

Legal problems

Cultural aspects

To describe the differences between United States and china we take Hofstede five cultural dimension.

Data Source – http://www.geert-hofstede.com/hofstede_dimensions.php

Hofstede defines culture as a “Collective programming of the mind, which distinguishes the members of one category of people from another” (Hofstede, 1980).

After comparing Chinese and western countries there are some conclusion is shown :- (data source: Hofstede, 1991)

First, western countries give the impression to be on average lesser (United States of America 40, Canada 39, United Kingdom 35, Germany 35, and France 68 than China 80 in power distance. Second, in individualism, western countries are normally much higher (United States of America 91, Canada 80, United Kingdom 89, Germany 67, and France 71 than China 20. Third, western countries look like to have interim oriented at the same time as China is judge towards be present as long-term orient. Western countries, America are repeatedly investigated in cross-cultural study, because of economic power, and civilizing representativeness. In short we can say that the United States is indicating the so called “western culture” in between USA and China seems to be help and clarify all the civilizing differences.

Data Source – http://www.geert-hofstede.com/hofstede_dimensions.php

Data Source -http://www.geert-hofstede.com/hofstede_dimensions.php

USA and China has been significantly differ as their financial system, political systems, societal values and law in spite of the significant changes that have done for the current duration of years in China. The civilizing measurement score of USA and China (data source: Hofstede, 1993). There are some differences that can be found.

First, power distance, the China is scoring twice comparative to USA, this shows that China is centralised while USA is relatively decentralised. Second, USA shows the 1st rank in individualism and other side China is showing low score in individualism. Thirdly, USA scores higher than China in masculinity, its mean that USA has average masculinity whereas China is showing medium femininity. Fourth, China scores higher values in uncertainty avoidance than USA, which indicates that Chinese are moderately risk-avoiding but at the same time Americans are quite risk-taking. And also USA has an interim orientation while China has a long-standing orientation.

It has been broadly accepted by all that cultural differences deeply affect human behaviour and thinking.

Geert Hofstede shows that only seven countries having the highest Individualism (IDV):- USA – 91, Australia – 90, United Kingdom – 89, Netherland and Canada – 80, and Italy – 76.

Types of Joint Venture

There are basically two types of joint ventures mentioned below:-

First option is to be in agreement to collaborate with another company in a partial and particular way.

Secondly is to plan another joint venture dealing probably a new company, for handling a particular contract.

Joint Venture – Benefits and Risks

A small business can also use joint venture for increasing long term relationship.

A successful joint venture can provide:

Right of entry to new markets and circulation network

Better capacity

Contribution of risks

Entrance to bigger resources, which can include particular staff, skill and finance

The Risks of Joint Ventures

To make the right relationship and to do business with others probably many problems are arise if:-

The main prospect of the joint venture is not clear and discussed with everyone who is involved.

All the partners have their own opinion for the joint venture.

Difference in the level of sharing like assets, investments and other things which are bringing by all the partners into joint venture.

Belongs to different cultures and handling the different management can show the non co-operation.

In the joint ventures the partners are not interested to give full support and control.

A successful joint venture can depend upon the investigation and achievement thorough examine and learning of the objectives and main aim of the venture.

Choosing the Right Joint Venture Partner

Success of any business depends on taking right decision. Same happens with joint venture, success depends on some important points like with which you are going to deal with, what are the goals of joint-venture, other party is financially strong or not, what are their resources, etc.

Joint-venture in which two organizations are merged for achieving some particular objectives and before choosing a partner every organization must see that the other party is capable of bearing expenses and losses at some extent or they are on whom you can trust, same objectives are shared, credit ability of both, resources, etc. these are pointed below-

Financial position

Credit ability

Availability of resources

Shared objectives

The suitable partner in joint venture is the partner who has its own resources, asset etc. For better starting it is understood to choose the convenience of customers and suppliers. In this the company must have also think about the existing competitors and other associates. But company have to review the following:

Client can choose his partner according to their performance, reputation and reliability. He has also to access their attitude to group efforts or association and what are their business objectives. Partner should be financially safe and sound. Identify that have they other business partners and what type of relationship do they have with them. You should also recognise customer’s view about your partner and how strong is their management.

Legal analysis of the International Joint Venture

There are also some Americans legal issues which are also essential after analyzing the other business and other issues.

Controls on Export

Antitrust laws of United States

parliamentary reporting needs of United States

overseas barrier to Americans venture

Accounts and Taxes issues

To create a lawful composition

Recruitment

Credentials of the global Joint Venture

ANALYSIS OF THE SITUATION

PEST ANALYSIS

Pest means:-

The pest analysis is a wonderful tool for understanding the position, growth as well as direction of the business. It can be used for marketing and business development.

Political factors

Immigration control

Govt. Rules and regulations for NRI

Economical factors

Low inflation and unemployment

Very high spending in government.

Very much concentration about the growth of economy

Social factors

Variety of religions

Mixtures of Indians, British and many other countries

Equality in men’s and women’s.

Technological factors

Many ISP and airports available.

International and national lines are good.

A couple of TV’s stations.

Political factor: – Political factor is a big issue for regulating the business. There are many factors like stability of political environment, government policies and tax laws, government policies which come under economy, culture and religion, trading agreements for e.g. Nafta, EU etc.

Economical factors: – There are some factors are there when anybody is planning to start business internationally:-

Inflation level

Rate of interest

Gdp growth rate

Gdp Growth Rate – Gdp is an essential part of the UK national accounts which can provides concise explanation of the total economic activities in a county. Presently 3% is the Gdp growth rate because of the economic crisis and excluding this development of the world economy, UK is also representing positive numbers of 10

(Data Source http://www.statistics.gov.uk/CCI/nugget.asp?ID=56 )

Social factors: – These factors vary from one country to another country. And it is useful to take these factors. These are:-

Religion, foreign products and services, language impact, men’s and women’s roles in society, stability of population and wealth about older generation, opinion about green issues from young generation.

Technological factor: – Everyone knows that if technological factors are strong than it’s a strong tool is there with any country for globalization.

There are also some points which can be considered:-

Does technology allows for products and services to make more cheaply and to a better standard of quality.

Do the technologies offer consumers and business more innovative product and services such as internet banking, mobile services, etc?

How is distribution changed by new technologies? E.g. Books and Flight tickets purchases via the internet. Does technology offer companies a new way to communicate with consumers e.g. banners, CRM (customer relationship management).

SOLUTIONS AND RECOMMENDATIONS

In overseas market the most common and favorable way to do business is joint venture. Also we can say that the perfect source for growing in international market is joint venture. There are many problems comes there which are already discussed above like political, economical, technical, environmental, cultural, legal, and many more. It is the best option before entering in foreign countries to do business is to go through these issues because either these factors can affect the company in the future.

According to pest analysis and also there are some other solutions are available which are given below. :-

To finding appropriate market.

Prelaunch studies

Lack of infrastructure

Management

Customs and taxation policies

Credits and capitals

Markets

Comfort with agreements

Choosing a reliable partner

Interest in community

In terms of to finding a suitable market – If you are thinking about to business in overseas then u have firstly to choose the market where from the long term the growth rate is growing or high. Also examine the rate of interest, market demand/supplies and inflation rate.

In this prelaunch survey or study – It is very much important to do this before thinking a business in overseas because it’s gave information about the market, political factors, economical factors, legal issues, technology and much more. And after taking this survey u can examine that the market chosen by you is favorable for you in the future or not.

Lack of infrastructure Includes the advantages of technologies and environmental issues like pollution, transportation. Because if the transportation is not available nearby than it’s a big problem for doing business globally.

Management – A success is depends upon that how is your management works. And it is recommended that before entering into a joint venture just meet the management peoples and assure that the company has its own sufficient management force.

Customs and taxation policies – Before entering into joint venture it’s also important to check the taxation and customs policies and after that compare it’s with the profit margins.

Capital and credit – Before entering into joint venture or to do business internationally evaluation of the sources which already have and the required capital which we have required to the growth of business in the future and then compare the costs and returns

Comfort with agreement While entering in the joint ventures it is important to check the contract because it is better to explain everything in the contract so after that everyone knows there responsibilities and not a single misunderstanding happen.

Suitable and reliable partner – In the selection or choosing a partner just remember that the partner is reliable and having good image in the market and already have some future plans for the growth of the company.

Interest in community Means that the both partners should have responsible and these all responsibilities are written in joint ventures.

FORECAST AND OUTCOMES

It is analyzed that the joint ventures between China Zone and Radhe Consultancy there are some data is suggested before regarding many futures aspects which are beneficial in Joint Venture In this paper it is mentioned the purpose which is required for joint ventures internationally.

Also suggest the recommendation of PEST analysis and Hofstede five dimension theories. In this the main aspects is culture as well as economic conditions.

After describing this it is assumed that this joint venture will be going on accurately right because the capital of the company is good and having good management. With the Joint Ventures of companies and as per the Solutions and suggestion and Pest analysis and other factors that are given in this report it is assumed that the Chinese company will achieve its expected growth and work smoothly in the future as it wants with the USA based company.

Now a day there are many businesses and account related reasons for entering in joint ventures. In this partnership both partners have ability and resources like distributor, technology, finance, man force, management which makes a strong venture.

In a joint venture two or more parties are engaged to do business for a specific project. And in a partnership partners are involved to do a continuous business or long term relationship.

In this case study there are a Chinese company which wants to establish its business in USA. And it has identified with the help of Hofstede and PEST analysis which problems are there for entering and doing business in USA for a Chinese company. After discussing the problems of joint venture at international level, solutions and recommendations are also given.