Essay On Joint Venture Failure

Why International Joint Ventures Fail

In today’s business world, managing risk is paramount. Some multinational companies choose to fly solo, while others implement a joint venture (JV) to mitigate both see and unseen risks. Both equity JV’s, defined by resources contributed by both parties to facilitate a new company and contractual alliances, seen by partner collaboration without an existing new company creation, are attractive formats for companies to offset risk. Although the type of JV may be apparent, what is not clear is how to ensure the JV implementation is smooth and seamless.

While some critics would suggest there are multiple reasons for JV failures, others simply state that failure is eminent for one main reason, “double parenting.” Although there is superficial agreement between the parents, the end result is usually indicative of both disagreeing on most topics. For the most part there are two types of parents relative to JVs:

Dominant Parent:

Managed by one main parent that usually delegates corporate personnel for the JV.

Board of directors dominates as ceremonial leader, although each parent has executives present.

Shared Parent:

Both parents contribute personnel.

All executives from both sides share functional decision making powers.

Yet other critics of the JV estimate that close to 70% of all joint ventures (JV) fail mainly for three reasons: Poor/undefined leadership, cultural differences and overall poor integration processes. In addition international joint ventures, (IJV) site cultural and ideological differences that are the major contributing factors for JVs failure. It is important to note that no matter what the differences are between the parent companies; neither plans a thorough enough eva...

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If bilateral parental skills are warranted to the success of the JV, however unilateral skills are transferred, then unilateral dominance will occur

If bilateral skills are critical to JV success, then the JV will be a shared partnership.

References:

1. James Bamford, David Ernst, David G. Fubini. “Launching a World-Class Joint Venture” Harvard Business Review, February 2004; http://hbr.org/2004/02/launching-a-world- class-joint-venture/ar/1

2. Vadim Kotelnikov. “Most Common Causes of Joint Venture Failure”, http://www.1000ventures.com/business_guide/jv_failure_reasons.html

3. International Joint Venture; http://www2.warwick.ac.uk/alumni/services/eportfolios/bsqjfb/gbs0955773.pdf

4. Peter Killing. “How To Make a Global Joint Venture Work” Harvard Business Review, May 1982; http://hbr.org/1982/05/how-to-make-a-global-joint-venture-work/ar/4