In the past two decades, international alliances have become a central part of companies’ competitive and growth strategies (Kale and Singh, 2009). However, alliance termination rates are reportedly over 50% (Lunnan and Haugland, 2008). This paper aims to critically examine the reasoning behind the low success rates of International Joint Ventures (IJVs).
Glaister, Husan and Buckley (2004, p.1) define the IJV as “two or more legally distinct organisations (the parents), each of which invests in the venture (the child) and actively participates in the decision-making activities of the jointly owned entity”. The authors contend that the entity is international when operating in a country distinct from at least one of the parents.
Why International Joint Ventures Fail
Learning and Risk
Statistically, the failure rate of alliances is significantly higher than that of the single firm (Bleeke and Ernst, 1991; Das and Teng, 2000). Whilst there are multiple reasons, one key difference between single-firm strategies and strategic alliances is the uncertainty among partners. When firms pursue market opportunities alone, their focus is market transactions, so there is little concern for other firms’ opportunistic behaviour. Conversely alliances involve many risks such as the risk of partner non-cooperation in good faith (relational risk), in addition to the risk of unsatisfactory business performance (performance risk).
There is therefore a need to consider primarily why a firm enters into alliances of this nature:
For the purpose of this section the most important “benefit” to consider is that of organisational learning. Through the shared execution of alliances, activities and outcomes, firms can learn with and f...
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...ocus here is on the process rather than on the outcome (Das and Teng, 2001). However, the lack of trust, often due to the fear of losing brand reputation, leads to a struggle for greater control. At the inter-firm level, researchers believe that trust is a key element in co-operative relationships (Ring and Van de Ven, 1992; Sydow, 1998). IJVs however remain most vulnerable to failure due to the loss of trust between partners, resulting in a struggle for control and ultimately termination. Das and Teng (2001) set out measures they believe build trust, few of which are implemented in practice:
Whilst it has inherent and economic benefits, the challenges posed by IJVs are often undermined by the firms. With regard to global strategies, there is a growing need to embrace and develop IJVs through increased awareness of their internal challenges to improve success rates.
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