The aim of this paper is to foreground some of the of import issues that must be considered anterior to organizing an international joint venture. Why is this subject of import? The undermentioned quotation mark summarizes the chief ground:

“Cross-border M & A ; As. JVs and confederations seem to portion at least two features with matrimony tendencies of the station World War II “Baby Boomers” coevals: They have grown explosively during the 1980s and through the 1990s but – less fortuitously – they fail about half the clip. ” [ 1 ]

With this in head. it is really likely that Oklahoman or subsequently you will be involved in an international joint venture. either in the procedure of organizing one. fade outing one or working for one. The more you know about international joint ventures. the better prepared you will be to understand and lend to the solution for the challenges they present.

Most companies begin their enlargement to abroad markets by exporting their merchandises or services. Exporting merchandises has minimum hazard involved. particularly if the proper stairss are followed. However. in some cases exporting is hard or expensive and companies use other methods to perforate international markets. Forming an international joint venture with a foreign house in the mark market is. in some instances. the lone avenue to carry through the end. An international joint venture is normally a patterned advance in the investing degree that companies are willing to perpetrate anterior to to the full puting in a foreign subordinate. What is the chief difference between opening a subordinate and organizing a joint venture?

Harmonizing to Andrew Inkpen. a joint venture occurs when “two or more lawfully distinguishable houses ( the parents ) pool a part of their resources within a jointly owned legal organization” [ 2 ] “The distribution of equity among the parent companies can take different signifiers. runing from 50/50 IJVs between two companies. to decreased minority or dominant bulk bets. ” [ 3 ] In contrast. merely one company owns a subordinate. Even though companies perceive IJV as less hazardous than opening their ain subordinates. organizing unequal joint ventures can be hazardous and expensive. If directors are non careful in their analysis and
are non cognizant of the possible booby traps of international joint ventures so they can confront some serious problem.

So far we have learned that civilization plays a major function in concern civilization. Hence. civilization will finally hold a major impact in the international joint venture. Piero Morosini. one of the taking research workers in international joint ventures. explains the function civilization plays in international joint ventures as follows:

“Empirical grounds suggests that proficient issues are less likely to take to conflicting state of affairss compared to relationship jobs during the execution of international JVs and confederations. Throughout this stage. excessively much accent is normally placed on puting strategic aims at the cost of disregarding personal interaction aspects affecting people from different national civilizations. This has been cited as the most critical factor taking to unsolved struggles and straight-out failure of an international JV or confederation. ” [ 4 ]

Companies some times enter into joint ventures with aims other than to derive rapid entree into the market. Some companies want to larn from other companies or wish to unite resources in order to do a stronger company. “The demand to unite strategic resource parts and surrogate functional co-operation and co-ordination between the spouses to make common advantages is at the bosom of both IJVs and planetary confederations. ” [ 5 ] As you read this paper. you will larn that most of the failures in joint ventures occurs due to the misinterpretation in the ends and the definition of the ends. Finnie Williams states that “half of all partnerships don’t work. Those that are successful portion three features with successful matrimonies: • The existent and perceived possible benefits must be big for both parties. • The spouses must portion a common set of values

• The cardinal people must be committed to success. ” [ 6 ]

It seems that the most of import facet when speech production of international joint ventures. is that spouses must portion a common set of values. This is really
unlikely to go on. The chief grounds civilizations are different is because they have different sets of values. For case. some companies define success in footings of return on investing. others use market portion. yet others define it in footings of client satisfaction. These differences are critical and must be discussed early in the planning phase in order to put a solid foundation for the partnership. It is of import to maintain in head that even companies from the same cultural and concern background have different programs to accomplish their ends. Therefore. whenever we mix companies with different cultural backgrounds. the complexness degree additions. Peoples from different civilizations perceive concern in different ways.

The remainder of this paper provides illustrations of international joint ventures in different states and examines some of the general observations related to such ventures and states.

China

“Foreign investing in 1995 was $ US38 billion ( China Statistical Press 1996 ) . International Joint ventures ( IJVs ) between abroad companies and domestic state-owned endeavors ( SOEs ) have been the dominant manner of entry. However. many JV investings have been less than successful. ” [ 7 ] China “is now the world’s most active joint venture market. ” [ 8 ] These facts are non surprising as “China is home to 25 per centum of the world’s population and many western houses view the state as a premier mark market. ” [ 9 ] However. as we will discourse. non everyone embarking in China has been successful. For case. a group of Gallic investors dissolved their joint venture in China after 12 old ages of investing. The understanding was chiefly between Peugeot and Guangzhou Automotive Manufacturing ( GAM ) . It took four old ages of dialogues between Gallic and Chinese investors to organize the joint venture Guangzhou Peugeot Automobile Corporation ( GPAC ) in 1985. Following are some of the major jobs that Peugeot mentioned as cardinal elements to the failure of their venture in China:

• The labour force from the Chinese spouse had unequal accomplishments. which resulted in more clip and money spent in preparation. • Lack of providers in
the Guangzhou country that could supply quality parts. As a effect many of the parts had to be imported which raised the cost of the vehicles as compared to the competition. • Guangzhou functionaries would non let the works to buy parts from providers from other parts in China. Rivals who were located in other Chinese parts had entree to quality Chinese parts and were able to construct vehicles at lower monetary values.

There is another side to this narrative. analysts believe that:
• Peugeot chose the Guangzhou country because the cardinal authorities had small influence over the local authorities and there would be more direction freedom. However. this backfired on Peugeot as the distance from Beijing acted as a barrier to entree providers from other parts. • Peugeot did non move fast adequate to organize a joint venture with a provider in the Guangzhou part. Their rivals had formed such partnerships with their providers. • Peugeot repatriated most of its net incomes and made few alterations to their vehicles. Their rivals alternatively. reinvested most of the net incomes in the venture and to better the vehicles. [ 10 ]

I think there are several lessons to be learned from this illustration. One is that it takes a long clip to hold on the footings of the understanding. Second is that even though both spouses had agreed on the ends. unexpected lacks ( labour and parts ) put the company at a disadvantage with its rivals. It is astonishing that after four old ages of dialogues. cipher checked if the accomplishment sets were compatible and if the local providers could supply quality parts.

Third is that even when companies believe that they are doing the right strategic move they could be making the opposite due to miss of cognition of the local civilization. In this instance. Peugeot was under the feeling that distance from Beijing would be positive and in fact it turned out negative. Finally. companies that want to utilize joint ventures as agencies to hold a speedy entry into the market can acquire hurt. In this instance. Peugeot was non committed to re-investing capital in the joint venture. which at the terminal made them wholly uncompetitive in the market.

You might be inquiring who was the rival to Peugeot that was being so successful in China. That rival was besides a joint venture. This clip
it was between a German company. Volkswagen AG. and a Chinese spouse in the Shanghai country. As mentioned before. Shanghai Volkswagen was speedy to organize partnerships with providers to increase the content of Chinese parts in their vehicles and cut down the figure of imported parts. Another of import facet is the fact that Shanghai Volkswagen was reinvesting their net incomes in order to better their vehicles. Such betterments plus their committedness to the Chinese economic system. allowed Shanghai Volkswagen to gain a better repute among clients. [ 11 ]

Another major corporation that has been successful in organizing joint ventures in China is United Parcel Service. “UPS has been sharply spread outing its operations at that place. On Jan. 21 1999. the company announced an understanding with Chinese air hose Sinotrans to spread out UPS-branded operations to 18 extra metropoliss in China. conveying the sum to 21. The two bearers signed a memoranda of understanding that includes new investings to develop dedicated operations and more joint preparation and direction attempts. In 1994. UPS opened representative offices in Shanghai. Guangzhou and Beijing. and by 1996 established a joint venture with Sinotrans in Beijing. Attempts to set up joint ventures in Shanghai and Guangzhou were temporarily put on clasp with a alteration in authorities leading. ” [ 12 ]

These illustrations provide us with some utile information sing joint ventures in China. However. there are some other facts that you must cognize:

• Laws regulating international joint ventures in China are different than the Torahs for Chinese houses. • Laws may besides be different depending on whether the Chinese spouse is a province concern. small town or township endeavor. • China’s legal system consists of guidelines for concerns and single Judgess have adequate leeway to find what is right and what is incorrect. • Provincial parts can forbid the sale of goods non produced on its ain part. ( this was the instance with Peugeot providers ) . • The demand for authorities support is greater when the end product of the joint venture is sold within China • The local spouse is critical when the end product must be sold to the authorities alternatively of the general populace. [ 13 ]

A study of 125 randomly chosen Sino-Western joint ventures. each with a lower limit of 50 employees. and each in concern for over one twelvemonth. were surveyed in Shanghai. They surveyed troughs from both parent companies in order to compare consequences and the consequences were as follows:

• The end accent of the two groups was well different. • Chinese directors focused on things that they had non yet mastered such as engineering. direction accomplishments. and capital apprehension. • Western directors focused on their ain things to be mastered such as understanding the local market. authorities policy and the political system. [ 14 ]

Japan

The state of affairs in Japan is assorted. While some research workers point that there are some major jobs in organizing international joint ventures. big multinationals have formed really successful joint ventures and the proclamations of more and more joint ventures being formed continues. On one manus is the position that international joint ventures between Nipponese and North American houses in the automotive industry have encountered many jobs. Most of the jobs are related to cultural differences and direction manners. “Although it is excessively simplistic to depict Nipponese direction as long-run orientated and American direction as short-run oriented. the Nipponese spouse houses in this survey appeared to concentrate on client satisfaction and merchandise quality instead than net income based public presentation. Nipponese houses seemed less constrained by issues of portion monetary value and impatient board of managers than their American opposite numbers. ” [ 15 ]

On the other manus is the tendency of new joint ventures being formed or bing 1s being expanded. “Goodyear Tire & A ; Rubber Co. and Sumitomo Rubber Industries announced the formation of four joint venture runing companies. The units will be based in North America. Europe. and Japan. Two U. S. -based service joint ventures will besides be formed. one for planetary buying and one for sharing tyre engineering. ” [ 16 ] This understanding between Goodyear and Sumitomo reflects some experience in organizing joint ventures as they have clearly defined the ends of the different joint ventures. This
joint venture seems to be headed in the right way. it will be interesting to follow up in a few old ages to see if they really become successful.

“Dainippon Ink and Chemicals ( DIC ) and Eastman Kodak say they will unite parts of their Nipponese in writing humanistic disciplines concerns in April to do a Nipponese unit for their existing JV. Kodak Polychrome Graphics ( Norwalk. CT ) . The combination will increase the JVs gross revenues from $ 1. 5 billion last twelvemonth to $ 2 billion in 1999. Kodak says. ” [ 17 ] Kodak seems to be holding success in their joint ventures with Nipponese companies as they are spread outing their current joint venture.

Dupont and Teijin announced that they will organize a 50-50 joint venture to fabricate polyester movies. The joint venture is expected to bring forth gross revenues of $ 1. 4 billion and stand for 25 % of the market. “Both companies say the venture will let for the free flow of engineering and will unite DuPont’s strengths in the U. S. . Europe. and China with Teijin’s strengths in Japan and Southeast Asia. ” [ 18 ]

Once once more. it seems that companies that invest clip and attempt analyzing and understanding the challenges of joint ventures get on the right path from the start. Companies that merely want to make concern as usual ( the instance in the automotive industry ) will hold a difficult clip doing the joint venture successful.

Spain

Spain has seen less activity in footings of joint ventures than Japan and China. It seems that Spain is non perceived as “risky” state and most companies might be willing to spring into to the full owned subordinates in Spain. Besides. the barrier to come in the market might non be every bit high as in the instance of the Nipponese market. However. in some industries. such as the fiscal services industry. there is a demand for joint ventures to perforate the market. Spanish people look for names of familiar companies to put their money.

Harmonizing to a London fund director interested in the Spanish market.
“The easiest manner to interrupt into the market is through joint ventures with local Bankss but there are non many suited spouses. We have looked around a few Bankss but we haven’t been able to come up with a trade we like the expression of. ” [ 19 ] There is one company that has formed a joint venture with a Fibanc in Barcelona. Lazard Unit Trust Managers. Although. the bulk of the investing houses have decided to merely open their ain subdivisions in Spain. Fidelity’s pull offing manager for cardinal Europe believes that “Spain has a large population. around 40 million so in footings of sheer size it is really attractive.

It’s one of the markets we have to be in. Fidelity opened its office in Madrid this twelvemonth and has put a gross revenues squad in topographic point. We are taking at making our ain distribution channel instead than any other signifier of strategic confederation or joint venture” [ 20 ] It will be interesting to detect which of the two houses becomes more successful given the different attacks to perforate the Spanish market.

Another recent joint venture in Spain is Spanair. Formed between Scandinavian Airlines ( 49 % ) and Viajes Marsan ( 51 % ) . Due to the recent deregulating of the European air hose industry. the two companies were able to set up the air hose as a joint venture. Spanair is winging direct from Madrid to Washington D. C. and it is increasing the figure of intra-Europe flights. Spanair is now seeking to organize confederations with United Airlines to derive market acknowledgment in the United States.

Spanair has a different attack to selling. they consider themselves an “airline with humor” . in fact. they gave off 266 unit of ammunition trip tickets to the first 266 people to get at the airdrome have oning some type of costume resembling some facet of the Spanish civilization. [ 21 ] Although. it seems that this air hose has had a great start. it will be interesting to happen out how they do in the hereafter. as the Spanish civilization seems to be playing a city manager function in the manner the air hose is run. I think that if Norse Airlines is to the full cognizant of the differences in direction manner between them and their Spanish spouses. this joint venture should successful.

Soviet union

Prior to 1987. Russia had major limitations in the formation of articulation
ventures. Merely Eastern Block states were allowed to organize joint ventures with Russian spouses. However. after 1987 the chance for joint ventures with Russian companies opened up and the consequence was a inundation of joint ventures along with jobs. hazards. defeats. chances and wagess. [ 22 ] The undermentioned quotation mark summarizes the joint venture state of affairs in Russia:

“Although more than 10. 000 international joint ventures have been registered in Russia since 1987. merely about fifth part of those have really begun operations. Historically. many Russian-foreign joint ventures fail in the first twelvemonth of operation. with an mean survival rate of about 2. 5 old ages. ” [ 23 ]

Richard Reece has identified some myths about Russians. which he believes are cardinal elements in the failure path of international joint ventures in Russia. Following is a sum-up of these myths and his observations sing the myths and suggestions to see when organizing a joint venture in Russia.

1. Russian workers are alkies and have an inferior work ethic. Alcoholic ingestion might be higher. there is no certainty in this comment. nevertheless. Russian workers are used to longer holidaies in the summer clip and this can make the feeling that Russians are lazy. His suggestion is to larn more about the Russian wonts and manners prior to perpetrating to a joint venture and have unrealistic outlooks.

2. Russians are nescient. incompetent directors. It is of import to retrieve that Russians are larning about the market economic system. For many old ages they have non been exposed to unfastened markets. so they are less familiar with issues such as pricing. receivables. cost analysis. funding. hard currency flow. and selling. It is of import to retrieve that this is one of the major grounds why Russians are looking for partnerships with western companies. Russians are eager to larn more about the western manner economic sciences. The best manner to happen out the cognition degree is trough interviews with possible spouses.

3. Russian directors lack concern understanding. This myth has some truth in it. nevertheless. the fact that the Russian economic system is unstable. has given directors the ability to respond rapidly to alterations and adapt to the conditions of the new environment. In fact it is of import to understand that non all western manner solutions will work in Russia and Russian director are more familiar with the inside informations on how to acquire things done in Russia.

Richard Reece makes peculiar accent in communicating as a cardinal ingredient to a successful joint venture in Russia. If possible spouses do non larn about each other. how can they anticipate the venture to be successful.

General Guidelines to Choose a Partner.

In general regardless of the states involved. William Myers offers the following guidelines to choose an equal concern spouse:

• Is your prospective spouse a known entity?
• Have you worked with the group before?
• Do the organization’s civilization and values fit yours?
• Does your prospective spouse understand how associations work? • Will the organisation be flexible in crafting feasible trades? • Can your prospective spouse clearly define success in the joint venture? • Does your prospective spouse have a repute for honestness. and will the organisation define working understandings in composing? [ 24 ] Answers to these inquiries will give you a general thought on whether to continue with the venture. make more in deepness analysis or merely non travel through with the procedure.

Decision

This paper presented illustrations of successful and unsuccessful joint ventures. It besides highlighted of import information sing cardinal facets of joint ventures in different states. Joint ventures are still popular and international companies are making more every twenty-four hours. Therefore. the cognition from this paper should help you to better understand the challenges associated with most joint ventures. A subject that was consistent
throughout the literature on joint ventures is the importance of cultural differences. forbearance and the comparing of joint ventures to marriage. Therefore. if you have been married for a piece. you might be better prepared for a joint venture than you think.

Another interesting observation is that joint ventures seem to be preferred when there are market barriers. such as the instance with Japan. or when the perceived hazard degree is comparatively high. such as Russia and China. The fact that there was scarce information on joint ventures between companies of developed states indicates that joint ventures are non the chief avenue of enlargement for most houses. This does non connote that they do non go on or that are non recommended. it merely states that they are far less popular. Companies are more willing to set up their ain subordinates or subdivisions since the hazard degree is lower. If you are involved in a joint venture. utilize the guidelines presented in this paper. The writers who recommend them have been analyzing international joint ventures for several old ages and have learned a batch from them. ———————–

[ 1 ] Morosini. Piero. 1998. Pull offing Cultural Differences. Pergamon Great Britain. [ 2 ] Inkpen. Andrew. 1995. The direction of international joint ventures. Routledge London and New York. [ 3 ] Morosini. Piero. 1998. Pull offing Cultural Differences. Pergamon Great Britain. [ 4 ] Morosini. Piero. 1998. Pull offing Cultural Differences. Pergamon Great Britain. [ 5 ] Morosini. Piero. 1998. Pull offing Cultural Differences. Pergamon Great Britain [ 6 ] Finnie. William C. 1998. Strategic partnering: Three instance surveies. Strategy and leading. 26 ( 4 ) : 18-22. [ 7 ] O Connor. Neal ; & A ; Chalos. Peter. 1999.

The challenge for successful joint venture direction in China: Lessons from a failed joint venture Multinational Business Review. 7 ( 1 ) : 50-61. [ 8 ] Si. Steven & A ; Bruton. Gary. 1999. Knowledge transportation in international joint ventures in transitional economic systems: The China experience. Academy of Management Executive. 13 ( 1 ) : 83-90. [ 9 ] Si. Steven & A ; Bruton. Gary. 1999. Knowledge transportation in international joint ventures in transitional economic systems: The China experience. Academy of Management Executive. 13 ( 1 ) : 83-90. [ 10 ] Harwit. Eric. 1997. Guangzhou Peugeot: Portrayal of a commercial divorce.

China Business Review. 24 ( 6 ) : 10-11. [ 11 ] Harwit. Eric. 1997. Guangzhou Peugeot: Portrayal of a commercial divorce. China Business Review. 24 ( 6 ) : 10-11 [ 12 ] Traffic World 1999 UPS’s large interest in China negotiations. Feb 8: 37. [ 13 ] Si. Steven & A ; Bruton. Gary. 1999. Knowledge transportation in international joint ventures in transitional economic systems: The China experience. Academy of Management Executive. 13 ( 1 ) : 83-90. [ 14 ] Si. Steven & A ; Bruton. Gary. 1999. Knowledge transportation in international joint ventures in transitional economic systems: The China experience. Academy of Management Executive. 13 ( 1 ) : 83-90. [ 15 ] Inkpen. Andrew. 1995. The direction of international joint ventures. Routledge London and New York. [ 16 ] Fleet proprietor. 1999. Goodyear. Sumitomo trade. March: 16.

[ 17 ] Moore. Samuel K. 1999. Kodak and DIC develop another JV. Chemical Week. 161 ( 8 ) : 22. [ 18 ] Westerlvelt. Robert. 1999. Dupont and Teijin take a joint function in movies. Chemical Week. 161 ( 6 ) : 19. [ 19 ] Marshall. Julian. 1998 / 1999. Retail Pioneers will derive in Spain. 118: 56. [ 20 ] Marshall. Julian. 1998 / 1999. Retail Pioneers will derive in Spain. 118: 56. [ 21 ] Guttman. Robert J. 1998. Spanair: The sky’s the bound. Europe. 380:16-17. [ 22 ] Reece. Richard. 1998. Successful joint ventures in Russia. World Trade. 11 ( 8 ) : 42-44. [ 23 ] Reece. Richard. 1998. Successful joint ventures in Russia. World Trade. 11 ( 8 ) : 42-44. [ 24 ] Myers. William. 1998. Picking your spouses sagely. Association Management. 50 ( 10 ) : 31.