When a company decides to enter a foreign market, they must decide on the best mode of entry. There are many modes of entry that a company can choose from and all have their advantages and disadvantages. Different local conditions at different foreign locations require specific entry mode strategies. One entry mode strategy that many companies choose to use is a joint venture. A joint venture involves establishing a firm that is jointly owned by two or more otherwise independent companies (Hill, 2013, p. 458). Joint ventures involve direct investment in the foreign country and can entail the company be a minority, a majority or equal owner. Joint ventures are usually used when the foreign country has established rules against the operation of a local company by foreigners (Hernandez, 2011).
A major advantage of using a joint venture to enter a foreign market is that the foreign investing firm benefits from the local partner’s knowledge of the host country’s culture, language, political system, and local business conditions. Joint ventures also allow the cost of entering the foreign market to be spread out between the partners and is a safer more conservative form of entry. However, joint ventures also pose problems of control. The investing firm may have to give up power and many times is asked to give up majority power to venture into a foreign country. This may mean that the local partner has more of the decision making power. This may cause conflict between the partners when a disagreement of direction, goals, or objectives arise (Hill, 2013). A great example of a successful joint venture is when Disney decided to bring its theme park to Hong Kong.
Disney’s Joint Venture with Hong Kong
In 2005 Disney opened up...
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...rtant than profit or “worldly” success.
Investing in a foreign market takes much planning and should not be done without great care. As Disney found, a joint venture can be a great mode of entry if used in the right markets and with the right partners. A joint venture has great advantages with gaining insight into the local host country’s culture but also takes risk with trust and control. A joint venture may not always be the best option and a prospecting company should do their due research. It took Disney two prior foreign investments before seeing that a joint venture could really work well for them. Many factors, including beliefs and values, should be key in the way a company decides to enter a foreign market. But like Disney learned, each foreign market is different and thus, the company almost has to become a new company for that specific market.
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