International Joint Venture
International business strategy
Introduction
Joint venture management
Joint venture in practice refers to a contractual business agreement where two or more parties agree to join together for the sole purpose of executing a new business entity through contribution of equity (Ainuddin & Azimah, 47). The parties involved exercise total control over the business entity and therefore share expenses, assets and revenue (Inkpen, 450). It is worthy noting that the joint venture definition may vary in accordance to the laws of a particular country. This implies that a joint venture in a country like France might be different from that of Germany. This definition by country has made joint venture an elusive topic. To some extend a joint venture might also refer to individuals coming together with the purposes of executing a particular project. In this case both parties invest equally in the entity in terms of time, effort and money required to build and develop on the original concept (Chen, 45).
Whereas joint ventures might be a small undertaking, major organizations utilize this business strategy for the purposes of diversification. A joint venture can facilitate the success of smaller undertakings for those enterprises that have just begun operation in international business or for established and stable corporations (Chen, 470). Joint venture management thus refers to a framework through which managers use in identifying pitfalls and benefits of cooperation so that realistic expectations and strategies are set to successfully transfer resources, personnel and knowledge in the joint venture. Since the cost of operating joint ventures is significantly high, joint venture management allows proper managing of shares and revenue acquired.
Since a lot of resources and money is involved, it is necessary and critical to have a planned strategy management. Joint venture management ensures that both parties in the venture commit to focusing progress and success through integrity, honesty and effective communication.
Categories of management of international joint ventures
Analyzation of joint venture management reveals three categories of management that is a parent joint venture, joint venture companies and independent joint venture management. In this case control of the initial companies in joint venture management is analyzed so that their influence on strategic and operational decision making is known. In dominant joint venture category, management is generally run by the major parent company (Stevens, D., & Beamish, 456). This means that the decisions on the strategic operation and arrangement of the joint venture is dominated by the parent company. In management of shared joint venture, both initial companies have dominance on the decisions of the venture. In this type of joint venture management, board directors have a greater say in the decisions that facilitate operation of the venture. It is here that both parent companies contribute equally in the composition of the board.
International joint venture management is put in place so that the success of the venture is realized. This is not always the case since the management frequently faces challenges that hamper the success of management. The following are challenges facing international joint venture management.
Unsuccessful joint venture management
Most ventures perform poorly at international business due to many issues. Among these issues are the challenges that the management encounters that hampers its operation to a point of collapse. The following are challenges management faces:
Challenges facing international joint venture management
Management of international joint venture can sometimes result in a dire frustrating experience and total failure due to poor strategy and planning. Factors like technological issues, the economic meltdown and market place development are difficult to predict and therefore can have deliberating consequences for management.
Governance and control
This is one of the challenges facing management of international joint ventures. If objectives of each party in the venture are not well defined in the agreement, their responsibilities and obligations, objectives of their rights, it can lead to managerial challenges therefore leading to collapse of international joint ventures. The objectives of relation development and cultural systems in the management of international joint venture presents another challenge on the managers. This could be made worse by one board member conflicting with the other yet they all must contribute to the successful management of international business ventures.
Governance decisions and control are critical for success of international joint venture. On the same note, governance might provide an avenue for challenges in the management of international joint venture if not well administered. It is always hard to make governance changes and decisions if the parties in the venture do not agree objectively. Issues arise like ensuring equality in the level of ownership and how management responsibilities need to be distributed. Poor balancing in responsibility distribution and ownership equity share leads to wrangle within the management posing great threats to the progress of the venture (Kim & Inkpen, 323). The performance of international joint venture depends heavily how well it is managed. Poor governance and control leads to imbalance in decision making and friction among partners ultimately reducing the chances of survival for international joint venture.
International firms that have partnered, often, lack well defined and maximized equity ownership which leads to imbalance in governance. This in turn, facilitates the rise in management conflicts that threaten the existence of such ventures. In addition, the equity afforded in the joint venture by the partners determines the bargaining power of the partners in the management board. This implies that if terms are not well controlled management of the joint venture is critically compromised. Poor equity holding makes the smaller partners to compromise their commitment to the management of the joint venture, therefore laying obstacles for quality governance and management.
Another issue of governance is the influence of the host government. The local government influences and changes the bargaining power of the firms. This happens in a way that most local governments often shift the bargaining power to the local firms rather than joint ventures thereby posing a challenge on the management of international joint ventures. Building and maintaining trust between partners in international joint venture is critical to effective management. More often international joint ventures rarely have trust therefore impeding managing. This implies that renegotiation and cooperation lack therefore substantially declining the management satisfaction and commitment to the joint venture.
Another issue is that most international joint ventures splits management control between partners without regarding the expertise of partners hence failing to achieve management benefits. . On the same note successful governance demand that a business gets an audit from outside the firm or venture. Businesses can have proper data on financial projections, but they might be wrong, hence the need to have an external auditor to bring out real issues.
Internationalization
It is critical to note that international joint ventures are a method of global expansion. In this case they provide local knowledge and expertise to foreign partners. This ultimately highlights the crucial role of joint ventures in the global economy. On the other hand internationalization might provide channels for management problems. Management in joint ventures has to grapple with the idea of making decisions from a broader option considering global business strategies available.
Operating of joint ventures requires knowledge and experience of doing business in international markets (Killing, 123). This might become a management challenge if the firms involved are inexperienced. International joint venture also means that the level of completion increases hence putting more pressure on the management. The management has to deal with the problem of developing and sustaining new competencies.
Cultural differences
Managing international joint ventures is a complex task that is further complicated by differences in culture (Beamish, 33). Cultural differences make managing personnel, communication and decision making more complex and challenging. Managers have to deal with the problem of working in a country that is unfamiliar to one of the partners and learn how to work and associate with the local people and partner. Cultural differences influence the longer survival of joint ventures. Aside from local people, the management team has to learn to work, communicate and make decisions that might have cultural impacts (Marcolin & Ross, 123).
The management would face challenges of individualism, work values, uncertainty and longer orientation. The comfort level of managers are different and different individualism in people present a hard situation to management (Zhou, 1130). The differences in uncertainty and orientation reduces the survival chances of international joint venture.
Managers must deal with this problem of cultural differences in the management of the ventures. Conflicts are likely to occur based on individualism and longer orientation by partners, a scenario that management has to solve. In addition, delineating and differing management responsibilities conflicts could arise in the case of cultural differences.
The organizational cultural difference is another challenge that management has to deal with in managing international joint ventures. Organizational culture affects management equally like national culture. Partners who come together to work jointly might have different organizational cultures that affects the operation of management and in extension the entire venture (Dhanaraj & Paul, 301). Partners with distinct organizational cultures means that it will take management a longer time to liberate them together for the success of the joint venture. The case is easier for similar culture since they will merge easily providing a platform for easier management. The management will be faced with the problem of merging and conducting separate management styles.
Unexpected financial ; performance and management problems
One of the challenges that affect the management of international joint ventures is financial outcomes that results in financial disputes among the partners (Julian, El at. 115). This hinders the managers work as they have to solve this problem as well as provide direction for the venture. This always happens in case the expected financial results are poorer and do not meet the targets. Poor and hasty planning by the partners might be the cause of this financial problem yet this implies that managers have to work harder and be more effective in predicting situational market changes. Management feels the pressure of evaluating financial situations on a regular basis all the way.
Management problem consequently emanates from the blending of managers that are used to working differently and independently (Beamish, 25). This means that the way they approach issues is different and this brings friction inside management lowering efficiency. This can have dire consequences on the international venture since many joint ventures have separated on lack of understanding of leadership strategies to be employed. Lack of compromising and understanding between the parties to the international joint venture makes the alliance weaker therefore undermining the efforts of management.
Inappropriate management structure
Management of international joint ventures is also faced with the problem of misfit managers (Chung & Paul, 990). This is usually brought about by struggle by both parties to gain equal rights. This innapropriation in structure makes it hard for management decision making as it slows down the process. Periodic decisions for the purposes of operation which should be made quickly are also slowed down since there should be lobbying before a simple decision is made. Sometimes a committee has to be set so that it reconciles the parties, which is time wasting. This problem coupled with poor communication distracts management from the real issues affecting the venture hence creating major challenges in the long run.
Poor planning and formation
Problems and challenges that arise in the management of international joint ventures are mostly of inadequate planning . Sufficient and evaluated planning of the management involved ensures that the venture succeeds. The parties in the venture might have been too hasty in their cooperation which leads to pressure on the management of the international joint venture. Hasty planning and lack of required information always fails to evaluate and assess appropriate factors involved mounting more pressure on managing the venture. All parties involved in the international venture need to pay more attention on all factors , customers and information before starting the venture which facilitates the management of such a venture. Failure to observe this initiates a poor beginning, setting a stage for future challenges and problems.
Studies done on the international joint venture management, cite inefficient planning as a major failure of the ventures. Few partners in the venture evaluate and think of the perceived challenges they may face and consequently adopt tactical and definitive strategic plan. This is always done due to excitement to start the project and grab opportunity of new markets. This implies that the managers have to draw their attention in developing and refining the venture this makes the challenges to override their efforts.
Successful joint ventures
There are several key issues and strategies that managers of successful international joint ventures have utilized. Trust is a critical success factor in the management of international joint venture. There needs to be trust between joint venture parties as this is the most crucial factor affecting and influencing the success of the management and ultimately success of the joint venture. Successful joint ventures such as Cargill were built on trust which is seen to stabilize relationships between inter-organizational. This reduces complexity in the contractual agreement and behavioral uncertainties.
In addition, trust in joint venture management brings about certainty in business operation and enhanced exchange of information within the venture. Intra and inter-organizational trust could be ensured in the international success of the joint venture through personal attributes which includes consistent and reliability respect honesty, expertise and behavior (Beamish & Killing, 23). This creates goodwill and facilitates commitment within the venture thereby establishing an open and broad share of information. Successful management of international joint venture shows proof that trust is critical.
Information is also crucial to successful management of joint ventures at the international stage. A domestic firm must acquire detailed and well informed history regarding the potential partner from foreign countries before finally deciding on strategic decisions (Kamminga & van, 233). A comprehensive control approach application is also a key issue in successful management of international joint venture. This mechanism includes compatibility with a system of control and selection of trustworthy leaders. Management determines the failure or success of any given joint venture. Prior to establishing of international joint ventures, reliability of employees is of great importance.
Another key factor of successful management of international joint venture is understanding between partners. Understanding ensures a perfect mutual relationship in the venture which encompasses constant communication and an easy inflow of information. These are crucial elements of a perfect cooperation such as joint venture especially at international level.
Constant and effective communication creates a basis of understanding for successful management of joint ventures (Arregle & Hebert, 96). This implies that in case a partner wrongly affects the venture, it is important that this is communicated to the other partner so that both share the solution of the issue. This goes a long way to ensuring that there is a progression in the management of the joint venture as well as removal of challenges. It is only through convinced parties that the success of the project is ensured. Furthermore, in successfully managed joint ventures, all parties benefit.
Proper communication within the joint venture ensures that there is effective and efficient coordination between employees in the venture for the success of the venture (Choi & Beamish, 17). Proper measures put in place are helpful in such situations. Employees of the joint venture are supposed to be integrated so that they identify themselves with the new entities. Open communication of changes and decisions in the joint venture and to all stakeholders is sufficient in avoiding challenges and uncertainties. In the cases that a joint venture has different headquarters in different countries, there should be the management department responsible for relaying information between the two countries.
The language barrier is a problem that hinders the success of joint ventures (Damanpour, et al. 467). This can be detrimental to the management of the joint venture since information is a crucial success factor. In this case appropriate selection and recruitment of managers with profound knowledge and excellent skills in languages will be vital in ensuring the communication flow
Most successful joint ventures suggest that local employees in the joint venture and management are key pillars to ensuring a continued cooperation. These primary pillars bring on the table professionalism, flexibility, experience, social and cultural competencies, expertise and capability to motivate ultimately distinguishing success from failure.
Personnel or human resource management also plays an important role in contributing towards the success of the overall joint venture. Successful management of joint venture recognizes and appreciates the usefulness of personnel (Fey, 256). These types of joint ventures deal with policy issues with personnel from the start. This is usually done through vivid alignment of personnel strategy and proper coordination of each partners’ policies on personnel so that long term success and progress of the international joint venture.
Another critical success parameters that leads to the success of international joint ventures include legal, economic and political situations, a thorough analysis of the local country’s market and the history of suppliers and foreign company (Fey, 409). Moreover, reduced mental barriers and increased cultural understanding are essential in the success of a joint venture. These need to be dealt with at all levels both at organizational and national level. The building of a strong relationship of trust and friendship between managers of the joint venture and locals facilitates this understanding. Literature from joint ventures in countries like Brazil suggest that locals build their interpersonal relationship base on empathy, harmony, honest and authentic amicability. This gives management of a joint venture trying to enter Brazil market a deeper understanding locals thereby eradicating the chances of cultural indifference. This ensures adaptability on the part of management hence initiating comprehension and quick problem solving thereby enabling the success of the international joint venture.
It is equally important for the joint venture management to realize and appreciate the dynamics of cultural differences. This might go to the extend of technology use, management techniques and social framework. It is critical that the stability of the joint venture can be challenged by divergent cultures ultimately leading to failure.
In the cases that local countries do not have proper regulatory measures, it is upon the management of joint venture to pay greater attention to formulating of contractual agreement. This means that mutual responsibilities and rights are well balanced for avoidance of conflict. In this regard, joint ventures require patience for the success in managing its operation.
Part two reflections
Benefits of the theory of business understanding
The knowledge from the theory in the first part of international joint venture is helpful. I have learned the following from the theory that help me understand real business. The theory confirms underlying issues of world business. The right timing is crucial for successful joint venture management in world business. It points out that it is difficult to know the which moment is best for entry in any venture. Right timing requires business to be ready for operation through planning early and strategic positioning in world competition. In addition, important and crucial issues must be done with before finalizing an agreement of doing business venture. This ensures that there is just and fair trade.
Governance
Studying the theory has also helped me understand its application in real world business. I now understand the real business better trough the knowledge of rules governing business which include; business operations especially joint ventures should have at least external director who will balance the goals of opposite firms. Secondly, I have learned that for effective management of international joint venture, naming of influencing executive is key to success. This is applicable in the real business world where specialized governance model is used. This ensures that managers of respective departments are experts increasing chances of business success.
Furthermore, effective governance requires that efficient directors are rewarded and controlled (Beamish & Lupton, 83). This is done in regard to their resource collection success, getting solutions and management responsibilities. On the same note successful governance demand that a business gets an audit from outside the firm or venture. Businesses can have proper data on financial projections, but they might be wrong, hence the need to have an external auditor to bring out real issues.
Diligence in doing business
I have understood that joint venture is a real business dealing that requires due diligence. It has shown that when doing real business, one needs to test logic that underlies ones decision. Testing logic helps in identifying the rationale and reason for doing business or making a decision for a joint venture (Neal & Peter, 50). It has also taught how to anticipate for issues in a business undertaking and the role of partners in a joint venture operation. I have also understood that real world business needs adequate planning and capitalization for laying a foundation for success. In real business challenges are the norm and success of a business mainly depends on the combined effort in facing these challenges and offering solutions. This leads to profit maximization and expansion of business may it be a single firm or a venture.
What have I learned
There several issues that I have been able to learn from the theory of international business strategy. I have learned that international joint venture business facilitates less costly and faster access to foreign counties’ markets than through acquisition of an existing firm or creating a new venture. Furthermore, international business ventures present a quick access to distribution channels, and provides needed know how and knowledge for foreign partners in the local marketplace (Lu & Louis, 112). This increases the probability of the venture being successful. Another point I have learned is that the local partner is helpful since he/she has an already existing relationship with the locals therefore reducing the prevalence of language barriers and cultural indifference.
I did not comprehend the benefits of international joint venture management especially in smaller firms. Effective joint venture management facilitates resource mobilization and expertise in share of risks and costs. Another key point I realized from the theory is that partners of international joint venture management can be able to utilize the advantage of complimentary synergies that exist among the international business. On the other hand I have earned that poor international joint venture management may result in frustrating business and fail. Another fact I did not know is that nearly 50% of all international joint ventures are poorly managed and end up failing. Ultimately autonomy in venture management is critical.
Will this learning help me see the business world in a better way? If so, how and why?
This learning is going to help me in seeing a business world in a better way through the following:
Conflicts will always occur regardless of management
The theory has made me aware that conflict in the business world especially in the joint venture is inevitable. The learning has made me realize that a considerable conflict in business is healthy, for it makes the management to re-evaluate its decision making process carefully leading to the success of businesses. An effective reflection in the real business world is a case where management realizes that a proposal of the other side is helpful and hence implement it. The theory also provides ways in which such conflicts could be eradicated for success of a business venture. This could be done through sharing of information, adequate communication and coordination which ultimately resolves problems in business.
Second, the learning has enlightened to see business world in a better way by showing me the ways of commitment in joint venture management that leads to success of the business. This to me, it implies that anyone can enter the business world succeed depending on how the management of such a business is carried out. It requires that management have performance measurement tools so that everyone works to satisfaction. This brings about technological changes, competitive advantage and evolving of talents.
Is the theory useful? If yes – say how this is the case. If not, why not? Do I think the theory is wrong?
The theory is crucially important. The following are the benefits of the theory: the theory is an integrative evaluation and examination of the management aspect of international joint venture and formation. The study gives a deeper understanding of joint venture management and considering critical challenges facing such ventures. This gives dimensional approach to international business strategy while overlooking the idea of differential functions of parental firms. Several challenges are presented in the theory and how they hamper the efforts of management in ensuring business success.
Perhaps the most beneficial implication of this theory is for future joint venture businesses. In this case personified issues affecting management are addressed meaning that future entrepreneurs in international joint venture could find this theory helpful. Examination of successful joint venture management also gives a deeper understanding of success factors which aids in explaining successful and unsuccessful managed joint ventures. Thus, the benefits of this theory are crucial for me and any interested person in joint ventures.
The theory of joint venture management is useful since it has made me realize that the concept is a multidimensional and hence requires performance measurement. This implies that the performance of joint ventures depends on how well they are managed. Finally, management of joint ventures in international business is subject to conflicts due to the partnership.
What has been the most difficult part of the process?
The most difficult part of the learning process was writing my assignment. It was challenging getting the scholarly materials on management of international joint ventures. Putting the materials together ones I had them also proved a hard task. Nevertheless, the learning process of doing the assignment has enriched my knowledge not just on joint venture management but in extension international business strategy.
If I were to do the work again, what would I do differently?
The work done is of no doubt, high quality and I would do it the same way as before. However, there are more materials I would include if the content were to be increased.
Could I have improved the work I have done?
The work is of the best standard of writing and content coverage and I could not have done anything differently to improve it.
References
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