What Is A Joint Venture Commerce Essay

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Joint venture is now a days quite common in all over the world. Business is expanding day by day and many companies want to establish their businesses in other part of the world from where they are working. In this briefing paper, I have tried to focus on problems of joint venture faced by the businessmen who want to establish their business in Pakistan. Being a consultant of joint venture i have focused on joint venture and the problems of joint venture which can be faced by my client in Pakistan. I have also analyzed the joint venture with respect to PEST analysis. The factors involving PEST analysis are very important when any businessman wants to establish a joint venture in other part of the world.

All political, economical, sociological and technological factors are focused in this paper. Because culture is varies from country to country and also from business to business. It is not easy to set a joint venture in other country without focusing on these analysis.

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We are consultant of joint venture in United Kingdom. We are running this business for last 20 years. We provide the services of consultancy to our clients regarding joint venture in other part of the world.

About the Client:

Our client is Royal Bank of Scotland (RBS) and they want a joint venture in Pakistan with Muslim Commercial Bank (MCB) which is the largest bank in Pakistan. They want a briefing paper on their joint venture with MCB in Pakistan and also want to know the factors which may effect on joint venture.

About the situation:

It is quite difficult for any company to establish themselves in a joint venture without knowing the political, environmental, sociological and technological factors of the country where they are going to engage themselves in a joint venture.

As we know that every country differs from all the above factors and it is quite hard to judge it without consultation. So actually they want to know all these factors before starting a joint venture.

Because here in United Kingdom, atmosphere and economy is stable and no company will be in such a position to engage themselves in unstable situation doing joint venture.

OVERVIEW OF THE CURRENT SITUATION

Accomplishment a joint venture is a key decision. This study will provide you an overview of the main ways in which you can set up a joint venture. What will be the advantages and disadvantages of doing joint venture and how to assess it if you are ready to commit.

JOINT VENTURE

A contract agreement between two or more parties for the purpose of executing a particular business. All parties agree to share in profits and losses of the venture. (Source: www.investorwords.com)

In other words we can say that:

A joint venture is a planned agreement between two or more entities to engage in a specific project.

Partnerships and joint ventures can be same but their implications are different. Because in partnership continuing long-term business relationship is involved and in joint venture only a single business project. (Source: www.rpemery.com)

In Joint Ventures entities are entered to gain individual benefits. It developed a product property rather than joint or collective profits.

A joint venture is a general partnership and it has not a separate legal entity. When Joint venture has met its goals the entity ceases to exist.

PURPOSE OF JOINT VENTURE:

Following are the main purposes behind a formation of joint venture.

Business expansion.

Development of new products.

Moving into new markets.

BENEFITS OF JOINT VENTURE:

Every business has some strong potential for its growth and some different ideas for a product. Joint venture may provide you the following benefits:

Additional resources.

Increase in technical expertise.

Access to established markets.

Greater capacity.

(Source: www.insolvencyhelpline.co.uk)

ESSENTIALS ELEMENTS OF JOINT VENTURE:

In joint venture agreement, following are the essential elements which are necessary to be included:

Parties should be involved in joint venture.

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What will be the objectives of joint venture?

What will be the financial contributions?

Academic property should be developed by the parties in joint venture.

Finances management on day to day basis.

Responsibilities and processes to be followed.

How will any kind of dispute between the parties will be resolved?

How joint venture will be terminated?

Confidentiality or non-disclosure agreements between the parties to protect them when disclosing secrets or confidential information.

(Source: www.answer.com)

BENEFITS OF JOINT VENTURE.

Joint venture is used to strengthen the long term relationship or collaboration with short term projects by any type of businesses.

With the help of successful joint venture, you can

Access to new markets and distribution networks.

Increased capacity.

Sharing of risks and costs with a partner.

Access to resources i.e. specialised staff, technology and finance.

Due to limited life span, a joint venture can be very flexible. Joint ventures are mostly popular with businesses in the transport and travel industries.

THE RISKS OF JOINT VENTURES

Joint venture could be complex to do a business with other people. Relationship cannot be developed in a short period of time; you cannot depend upon others without consuming time with them. These types of problems can be arising if:

The objectives of joint venture are not totally clear.

The objectives are not communicated to everyone who is involved in venture.

The objectives of partners are different.

Level of expertise is imbalance.

Cultures and management styles are different which caused poor integration and co-operation.

Partners do not provide leadership and support at early stages.

Success of a joint venture is depending on thorough research and analysis of aims and objectives. This should be followed up with effective communication of the business plan to everyone involved.

CHOOSING THE RIGHT JOINT VENTURE PARTNER

In joint venture, an ideal partner will be who has resources, skills and assets that harmonize your own. In joint venture you have to work contractually, but there should be no much difference in cultures. Because in different cultures, you can not adjust yourself immediately. It will take time to do that.

You should have to consider the following before choosing a joint venture partner:

Performance.

Their attitude towards collaboration

Their Level of commitment.

Sharing of business objectives.

Trust.

Brand complement.

Their reputation.

But when you are looking for a new joint venture partner, you should have to consider the following:

Financial position.

Credit problems.

Are they engaged in any other joint venture.

Management team.

Performance towards production, marketing and workforce.

Trustworthiness and reputation.

All the above information can be obtained from the company website which will really helpful for you before carrying out a joint venture.

PROBLEMS IN JOINT VENTURE

In this modern era, companies have to be efficient, flexible and profitable. Because without these factors, it would be very difficult to compete in the global economy.

The efficient and effective implementation of the policies and tasks are necessary when companies enter into joint ventures. Adjustment in new management, it is necessary that change management should focus on the careful management.

It is not easy for the management to adjust quickly, but it takes some time to adjust them in new business management. It would effect on overall business of the organisation.

These are the main problems which will take effect on joint venture.

POLITICAL PROBLEMS.

Political factors are varies from country to country. Every country has some political problems which can effect on foreign investment such as joint venture, partnership, mergers etc.

CULTURAL PROBLEMS.

Culture is also differs from country to country. Each country has its own culture. Culture can also impact on joint ventures. Because without entering into new culture, you cannot asses the diversity of culture.

ANALYSIS.

As a consultant of the joint venture, we have to adopt the following methods to analyze the factors which can affect the joint venture business of RBS in Pakistan with MCB.

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PEST Analysis

PESTEL Analysis

SWOT Analysis

But here we discuss PEST analysis because the factors involving in PEST are quite logical and vary from country to country. (Source: www.docstoc.com)

PEST ANALYSIS

These are the important factors which can be observed in PEST Analysis while considering the joint venture in Pakistan.

Political Factors

Economical Factors

Sociological Factors

Technological Factors

Now we describe all the above factors in detail because all these factors are changed from UK to Pakistan.

i. Political Factors

Political factors have always great impact on any kind of business around the world. As we know that the political situation in Pakistan is not very good for last few years. A democratic government which is elected for a period of five years is not able to complete its tenure due to influence of dictatorship. Every political party has to face the corruption cases of their last tenure and they have not enough time to adjust themselves in political environment. In this kind of situation it is not suitable for RBS to do a joint venture with MCB in Pakistan.

If the management of RBS believes that the present political government will be stable for long and will perform well for them then it is risk for them. Because due to military take over all the government polices have become more moderate.

ii. Economical Factors

At present, MCB has a large number of players in the banking sector such as NBP, ABL, ACBL, Standard Chartered Bank, City Bank etc. These banks have a target consumers having business in different areas of the country. Due to unstable economic situation of Pakistan, it is quite hard for any foreign company to establish themselves in joint venture. Banking procedure of UK is quite different from Pakistan. Inflation rate in Pakistan is unstable and this would effect on purchasing power of the consumers.

As we know, economy of Pakistan disturbed after the 9/11 attacks in USA. All companies of the world are hesitant to come in Pakistan for any kind of business. It will be quite difficult for RBS to adjust themselves in economic situation in Pakistan.

iii. Sociological Factors

Social factors can also influence on joint venture because these factors varied from country to country. Social factors in Pakistan are very much tied. This is because less education and lack of knowledge among the people. Now trend is changing and people are well educated and having knowledge about globalization. People of Pakistan are now well aware of latest business trends and cultures.

In Pakistani culture, people often save their money for long term purposes keeping in mind the future needs of their family. People spent significant time and money on entertainment.

Banking system in Pakistan is manual and computerized. Whereas in UK all banking system is computer based. Most population of Pakistan have no knowledge about computer based banking system. MCB is operating in Pakistan with good reputation. Most of the people using MCB for their banking transactions. RBS have to face sociological factors after doing joint venture in Pakistan with MCB.

Cultural diversity is becoming a significant issue for the companies. This is because a rise in globalization and also increasing a number of joint venture and other businesses. Hofstede has identified four major dimensions of values related to national culture. (Source: www.barclays.com/latitudeclub)

Power Distance

Individualism

Masculinity

Uncertainty Avoidance

Power Distance:

According to Hofstede "the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally".

In Pakistan, power distance is very high as compare to UK. Inequality amongst the people is very high and centralisation is normal. (Source: www.greet-hofstede.com)

Individualism:

According to Hofstede "Individualism pertains to societies in which the ties between individuals are loose".

In Pakistan, individualism is very high are compare to UK. Everyone is working for himself and for their families. There is no group loyalty. However, in UK individualism is very low and they work in groups. (Source: www.greet-hofstede.com)

Masculinity:

According to Hofstede "Masculinity pertains to societies in which social gender roles are clearly distinct; femininity pertains to societies in which gender roles overlap".

In Pakistan, masculinity rate is lower than the UK. Role of social gender are not clear and division of labour is also less assertive. (Source: www.greet-hofstede.com)

Uncertainty Avoidance:

According to Hofstede uncertainty is "the extent to which the members of a culture feel threatened by uncertain or unknown situations".

Uncertainty avoidance in Pakistan is much higher than the UK. Political stability is playing vital role of country's economy. In Pakistan there are too much chances of uncertainty keeping in view the past history. Whereas in UK the uncertainty avoidance factor is very low. There are lots of incidences of suicide attacks which are occurred during last few years create uncertainty in the country. (Source: www.greet-hofstede.com)

iv. Technological Factors

Technology is playing vital role in every kind of business. Major innovations are taking place in technology especially in banking sectors. Online banking system, ATM and other sources are working though technology. Most of the people have no knowledge about using online banking, ATM etc. Internet is also playing key role in online banking. Whereas in Pakistan 70% of the population is living in rural areas. They have no idea about internet and they have not provided this facility as yet. Some major cities are using this facility.

In UK, RBS is working online banking throughout the country. People have much knowledge about internet and other technological factors. Technological factors will be vital if the RBS entered in joint venture with MCB in Pakistan.

SOLUTION AND RECOMMENDATIONS:

After doing the thorough study of all the factors involving PEST analysis and Greet Hofstede theory of cultural dimension, it is extracted that joint venture in Pakistan will not be good for RBS. There are lots of risks involved which are not suitable for joint venture such as:

Unstable political environment

Cultural diversity.

Lack of modern technology

High power distance.

Unstable economic situation

Utilization of technology

It is recommended for RBS is that they should kept pending this joint venture deal and wait for the time being. You can not engage yourself in a business in such type of country where political environment is uncertain. Military dictatorship might effect on political government at any time. Keeping in view the past history of political scenario, no elected government has given time to settle down and their polices have been changed after taking over the government.

Following are the solutions to meet these factors:

Keep interaction with government.

Overview the current situation of Pakistan.

Keep watching economic situation of the country.

Keep relationship with the management of MCB

To know about cultural dimension of the country

At present, it is not suitable for RBS to make joint venture with MCB in Pakistan.

FORECAST OR OUTCOME:

Political, sociological, environmental, technological and economical factors can be changed in due course of time. Always things not remained the same. Government is working very hard to improve the image of their nation in front of global world. Polices of current government are working in a positive way. If the government completes its tenure of five years which is given by the people of Pakistan, we can hope for better outcome from its policies.

Government is trying to improve their credit rating in the world. Important steps are taken to attract the foreign investors to work in Pakistan. Every new step takes some time to bring result. We can hope that economy of Pakistan will move forward in positive way.

Government is focusing on education system which needs improvement. Technology is introduced in all sectors of industries. All modern facilities are provided in rural areas of the country. Most of the population is living in rural areas and they are not provided the basis necessities of life. Now government is focusing on all the elements which can improve the standard of living of people living in rural areas.

So we can forecast a better, prospect and modern Pakistan in near future which will be suitable for all the foreign investors very soon.