The Formation Of International Joint Ventures Commerce Essay

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International joint ventures have become growth strategy options, used by most multi-The recent globalization trends have encompassed firms to enter the international market to develop and maintain their competitive advantage. As markets, local and world economies, technology, and communications change, firms look for new ways to work together to maximize profit.

With this growing integration of the global market, firms have engaged in strategic alliances with other firms, mostly in the form of international joint ventures (IJV), as a market penetration tacit to gain advantage in the global market. Doz and Hamel (1998) stated that, in recent years that strategic alliances have become increasingly important vehicles for business activity. These inter-firm relationships involve firms from different parts of the world.

Recent evidence indicates that firms have dramatically increased the use of strategic collaborations for transactions that require a high level of involvement and coordination between alliance partners (Anderson and Sedatole 2003).

In developing countries, IJVs between local firms and foreign firms have become a fashionable means for both firms to satisfy their objectives. In this circumstances, the possible collaboration in a new project lowers capital requirements for both parties, where the foreign partners offers innovative technology, management knowledge, research and development and access to international export markets, while the local partners who are accustomed to the market environment offer knowledge of the indigenous market, the systems of government, the labour markets laws and regulations. These alliance acts as a tool for many multinational enterprises (MNE) to achieve the objectives set in the competitive international markets, providing opportunities for firms to share the risks and costs in production. IJVs are set up to cover specific projects with a time limit, which offer attractive opportunities, yet they frequently perform unsatisfactorily. Quinn (1999) suggested that strategic alliances have come to be seen as the means to improve the results of a company, with the underlying reasoning that by focusing on a smaller set of activities while obtaining inputs from many specialized outside suppliers, firms can get the best of both worlds.

There have been extensive research done on IJVs in general, and virtually all of the research that has been undertaken dealt with firms from the foreign partners' perspective. Very Few researchers have examined how dimensions of the local partners and their 'motives' behind of the formation, slight attempt have hardly been made from that perspective.


This study differs from others in that it will argue the interdependence that cause the formation of IJVs for the local partner, how they manage, rather than the looking at IJVs formation process from the western reasons for creating the inter-firm interdependence.

This study aims to explore the Motivation, Venture formation, Partner selection Equity and Ownership, Control, and Performance and stability, from the local partners' perspective. In order to achieve the main purpose of this study, it is of great importance to understand these factors, and matters that affect the local partners' viewpoint and how they convey in the collaboration.


The main objective of this research is to investigate and critical analysis international joint venture in a developing country, from the local partners' perspective. Looking at:

Types of IJVs used.

The motives behind the formation.

Theories or business models supporting IJVs formation.

How the partner(s) were selected.

Government assistance towards the IJVs.

Equity and Ownership.

Control and risk.

Performance and stability.

Research Questions

These research questions were structured in a clear, concise, and logical manner to crucial guide the research in fulfilling its main objective.

To explore the formation process of international joint ventures?

To examine the nature and level of asymmetry foreign and local partners in a developing country?

To appreciate the underlying conditions and factors contributing to the success of international joint ventures?

Literature Review

This section briefly reviews the literature outlook on joint ventures, looking at the definition of joint ventures and the literature doing on developing showing the research gap.

According to OECD (1986) repot, joint ventures appear to be an increasingly popular form of enterprise organizations.

Finlay (2000) defined joint venture as "an arrangement where two or more independent firms enter into a durable relationship to pursue jointly a common goal by establishing s distinct organisational structure with a number of dedicated resources and a number of characteristics of an independent firm". While Yan et al (2001) said that joint ventures involve firms from different countries cooperating across national and cultural boundaries, emphasizing on the national and cultural boundaries.

Traditional joint ventures were mainly a means to increase the profit level of each partner, but were seldom meant to be active step of industrial strategy (commission of the European communities, pg.17 1991). Harrigan (1988) suggested that this agreement was meant to promote the benefit among the owners, regardless of the position of the venture, and its future was independent from the parents' perspective. Nowadays, collaboration between firms is motivated by the need to overcome market imperfections. Ordover et al (1988) visualize research joint ventures as a plausible solution to market failure problems related to the dissemination of knowledge, whenever the latter is a key market asset that is in high technology and highly innovative industries. Research joint ventures can be used in this case to spread the risks of investment in the production of knowledge and eliminate appropriability and duplication problems.

Previous studies where empirical based observations. Most concentrated their attention to the approach to global competition, technology and knowledge transfer. Hardly are there studies based from the local partners' perspective in concern, especially in developing countries.

Few researchers have examined how the dimensions of joint venture strategies from the local partners perspective in developing countries. Beamish (1988) also concluded that, given the relative importance of joint ventures in developing countries, it was surprising to find a negligible amount of research into ways of improving the performance. Janger (1980) and Franko (1976) found it to be significant since the limited literature on joint ventures suggested that performance problems where more acute in developing rather than developed countries. Although beamish stated that, knowing how to operate successfully in developing countries can be a problem. Beamish (1988) also pointed out that developing countries are considered more complex, difficult environment to manage then developed countries.

With this in mind, this study would provide a critical review of existing literature and new data in order to establish current theoretical directions. In particular, a theory that highlights the motive behind forming of international joint ventures from the local perspective is proposed.


Research Philosophy

This study is using a contrustionism approach to gain new knowledge of IJVs from local partners' point of view. Identifying with the characteristics and patterns of IJVs and drawing connection to produce a theory. This is called inductive reasoning, where theories are the outcomes of the research. Inductive reasoning moves from specific interpretation to broader generalizations and theories.

Research Strategy

The qualitative approach would be used to conduct this study, hoping to show the relationship between the research done and theories derived. The qualitative approach to research is typically used to answer questions about the nature of authenticity, with the purpose of describing and understanding them from the researcher's point of view.

Figure 1: Inductive Reasoning Process.

Research design

According to Kerlinger (1986) research design is the plan and structure of investigation so conceived so as to obtain answers to research questions. In a sense the research design is a blueprint of research, dealing with at least four problems: what questions to study, what data are relevant, what data to collect, and how to analyze the results (Yin, 1994).

Previous research design carried out on IJVs research, contained a combined element of exploratory, descriptive, analytical and empirical research and focused on secondary data sources. This research is going to be based on multiple-case exploratory case study, seeking to build meaning and search for patterns of agreement within a compounded restraint. Yin (1994) pointed out that generalization of results, from either single or multiple designs, is made to theory and not to populations.

Exploratory case study would develop clear concepts, establish main concerns, and improve the aim of the research. This approach would provide an in-depth critical analysis of a local partner's point of view on their IJV business activities. Also, the multiple cases would help strengthen the findings thus increasing research's validity and reliability.

Data Collection Sources

Data collection for case studies depend on many sources including documents, archival materials, interviews, direct observation, participant observation, and physical artefacts. This research will use as many sources as possible with the aim of improve the validity of the findings.

Secondary Sources

Internal Sources: departmental reports, production summaries and studies.

External Sources: Bradford University libraries, which allow access to hard copy and online based research in the form of books, case studies from newspapers, magazines, journals and previous related thesis. Online internet sources: such as Athens, Google, Bing and Company websites

Primary Sources

In depth semi structured interviews: exploring what people think, feel, and experience during the formation of these IJVs. It also aims to gain a further qualitative understanding of the secondary data while relating it to the primary data collected from the interviews conducted.

Population Sample

These interviews would be conducted with managers and employees operating within the firms selected. The purpose of the interviews was to capture some qualitative data about existing management IJV activities. These interviews would be done under one month.

Data Collection Instruments/Tools

Interview guide.


Interview schedule

Interview questions

A recording device.

Data Analysis and Data Interpretation.

These applications that would be used to extract and process the information gathered from the interviews conducted. The data analyzed using a comparative analysis, and it is going to be interpreted using the following applications:

Microsoft Excel

Microsoft One word

Microsoft Project Manager

Microsoft Access

Microsoft Task Manager

Microsoft Portfolio



All this would be used for data entry, keeping track of interviews, storing and organizing information from various sources, track and manage data, and to analyze data as well as using it to visualize the results.

Limitation of the Research

There are many limitations to this research.

The time frame used to conduct the interviews is short. This makes the limits the amount of information to be gathered limited.

The mechanical applications used to interpret the data would make me unfamiliar with the data because the soft does all the breaking down of the process.

May have limited access to firms data, this due to the fact that must firms are protective of the information provide to outsiders.

Danger of generalisation.

Sample of Interview Questions.

Project plan

Chapter Plan