Reducing risks and getting access to new markets are major goals of international co-operations such as mergers, strategic alliances, contractual forms of co-operation and international joint venture (IJVs).
International Joint Venture
A joint venture is a collaboration agreement between two or more companies, which entails the sharing of profits and losses, skill and managerial expertise and technology to a varying degree. Joint ventures are typically formed between smaller domestic companies and foreign multinational companies and should incur benefits for all parties.
Multinational companies tend to use joint ventures as a mode of entry into a foreign market and capitalize on domestic government relation and local knowledge whereas smaller domestic companies seek out the growth opportunities arising from access to new technology, managerial expertise and access to a global marketplace (Weston and Mitchell et al., 2004).
Apart from the economic benefits derived from a joint venture, many companies also pursue this strategy to reduce risks associated with new business ventures. Joint ventures serve the purpose of achieving a joint goal and are therefore regarded as temporary arrangements (ANDRÄ, BROLL; 2012).
Joint ventures are generally approached from two distinctive points of view: on the one hand the control perspective, which emphasizes the tradeoff between control and the risk of appropriation of...
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...nt if they are in need of the partner’s technology, as they need to build trust.
The ownership structure is a tradeoff between control and efficiency, to the one extreme there is high foreign ownership which leads to high knowledge transfer and high control by the foreign party but little efficiency in the long run as the local firms perceived responsibility is low, and on the other extreme is a high ownership percentage by the local company which leads to little knowledge exchange and thus again a poor performance. In order for a joint venture to be successful a balance between the two extremes needs to be found.
In conclusion equal partnership, good planning and communication between the partners and careful selection of potential partners after in depth industry and market analysis and possible synergetic effects characterize the most successful joint ventures.
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