Introduction
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).
Definition
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.
MCC decided to spend class 4 working together on an Agenda. We broke out into groups and discussed the elements of a JV then prepared a high-level agenda.
Mergers and acquisitions transpire because in tough eras, firms yearn to benefit by buying new technologies, operatives reductions, grasping economies of scale quicker, and enhanced marketplace grasp and industry visibility. This is the immaculate scenario for a coalition, but many a times it’s the opposite case. Such synergy might just be in the minds of the heads of the two firms, and might or might not craft an enhanced value....
...recognize development of trust within an organization is both an opportunity and ongoing challenge. Trust creates the groundwork for effective communication, employee motivation, and retention. Trusting relationships lead to synergy, interdependence, and respect.
Employees, investors, suppliers and customers alike eventually reach a decision point in a relationship when they decide where to place their trust and with whom. Leaders are judged on what they do to win trust, and the sincerity and consistency of their effort to retain it. Leaders win trust by communicating openly and often, having a clear and committed communications policy, strategy and processes, initiating formal and informal communications programs and regularly assessing their own communications effectiveness and that of their team and their organization.
Because of the codesharing involved with the alliance, the other business’ reputation is very important. For example, if a Qantas customer from Australia buys a plane ticket to England, and stops at Dubai to get onto the second half of the trip which is operated by Emirates, the customer’s experience with Emirates may impact on the customer’s view of Qantas’ image. If, for example, the customer service was undesirable on the Emirates flight, then customers may feel that Qantas is a bad company as it partners with a business that has bad customer service. Therefore, one challenge of is alliance is that one business’ flaws may make customers feel that the business’ partners may also be
Engendering trust is an important factor for organizational success and the welfare of its employees; however, encouraging and maintaining trust can be difficult and demanding at times. Trust is essential to an effective team. A team lacking trust isn't really a team at all, it's just a group of people who work together. They unsuccessfully communicate with one another effectively, fail to share important information, and they often don't cooperate or work well with one another. As a result, they are not cohesive, nor do they collaborate efficiently as a group.
As the globalization of world markets continues unabated, American businesses seek to explore and develop capabilities to internationally source or distribute goods, services or intellectual property. The recent economic downturn has only made taking advantage of strategic opportunities through international alliances more appealing. All but the largest companies lack the infrastructure, resources, experience and management strength to enter international markets de novo. Business alliances of various forms allow companies to access the global marketplace more economically and effectively. Legal and regulatory, cultural, language and currency differences make partnering in the form of an international joint venture (IJV) an attractive option.
Introduction In the reading "A first time expatriate's experience in a joint venture in China" we have come to understand the nature and structure of the joint venture between the U.S.A. and China and the role that James Randolf played in strengthening and maintaining the international partnership. Controls Inc. was a subsidiary of the parent company Filtration Inc. and so was shielded from any outside competition. When Controls Inc. was given the charter to pursue its own business, they realized the need for being cost effective as a result of which they started an operation in Singapore with the name Controls Asia-Pacific with the prime objective to have a presence in the region and to study and evaluate any possibility of a joint venture. James has been an employee of Controls Inc. for the past 23 years with experience in managerial positions of about 15 years.
Zhang, C., Henke Jr., J.W., Griffith, D.A. (2009) ‘Do buyer cooperative actions matter under relational stress? Evidence from Japanese and U.S. assemblers in the U.S. automotive industry’, Journal of Operations Management, 27(6), pp. 479-494 ScienceDirect [Online]. Available at: http://www.sciencedirect.com/ (Accessed: 27 February 2010).
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.
significant activities in the strategic way better than the rivalry firms (Lüsted, 2012). It is
“A Joint venture involves two or more legally distinct organisations (the parents), each of which actively participates, beyond a mere investment role, in the decision-making activities of the jointly owned entity” (Geringer, 1988). The parties (often companies or individuals) contribute equity to develop a new entity and control the business, share risks and consequently share revenues generated by the venture. It is called an International joint venture (IJV) if at least one parent is headquartered outside the venture’s country of operation or if the JV has a significant level of operation in more than one country (Geringer & Hebert, 1989).
Tallman, S., & Shenkar, O. (2004). International Cooperative Ventures Strategies: Outward Investment and Small Firms from NICs. Management International Review. Vol. 39 (5), 299-315.
Business relationships affect the long-term growth of an organization. This essay looks at the how the relationships a business builds impacts the business and its plan for long-term growth. It will go on to discuss if there is any downside to the business being helpful to others. Finally, this essay will identify two companies that have sustained growth and similarities in their business model and practices. The discussion will identify what has and has not worked for each of these organizations while identifying competitors to the two organizations.
Since the end of World War II, international operations have become a reality for an increasing number of corporations. Many of these initial efforts began as simple export schemes to sell goods overseas to supplement domestic sales. Over time, however, international operations have become increasingly more complex: from joint-ventures to purchasing existing foreign firms to ‘green-field’ start-ups. While export operations usually require no more than extended business trips overseas, more complex international operations demand long-term assignments of key personnel outside their home-country. What would normally be considered routine business transactions in the home country can become very complicated when they are conducted between individuals and organizations from different cultures. In this essay we will examine how this cultural gap can affect international business and joint ventures.