International Joint Ventures (IJVs) Essay

International Joint Ventures (IJVs) Essay

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INTRODUCTION:

In today’s global world, multinational corporations (MNCs) need to find new markets to stay competitive. A way in which they can do this is through IJVs. Hyder and Ghauri (2000) estimate the growth of IJVs to be 25% annually.

As defined by Geringer (1988), a joint venture (JV) is when two or more distinct companies come together and form a new entity. Geringer and Hebert (1991) extend this definition to include IJVs and stated that if the headquarters of one of the partners is outside the country where the JV is set-up or if it has operations in multiple countries, it is an IJV.

For example, Sony Corporation and Ericsson set-up Sony Ericsson Mobile Communications with its headquarters in UK. Sony Corporation’s headquarter is in Japan while Ericsson’s headquarters is in Sweden (Sigurdson 2004).

An IJV has a high level of interaction and cooperation between the parties involved (Condon 2011). This increases the complexity involved which leads IJVs to have a 30-70% chance of not meeting their objectives, (Bamford et al. 2004) while 50% of IJVs get terminated early (Lunnan 2008).

The following essay explores the reasons why companies enter into IJVs, in spite of their high failure rate. It also provides recommendations to companies to enable them to increase the likelihood of success. REASONS FOR ENTERING INTO AN IJV:

Firms can grow internally or externally. However, not all firms have adequate resources and capabilities and thus look for partners. Studies showed that more than two-third companies depended on external growth (Hewitt 2005).

There are five economic theories that explain the motives for companies to opt for IJVs.

Transaction Cost Economics:

Companies form an IJV to ove...


... middle of paper ...


...o, A. (2008), ‘Boeing , Tata Industries Announce India Joint Venture’, Industry Week. Available at: http://www.industryweek.com/articles/boeing_tata_industries_announce_india_joint_venture_15820.aspx
[Accessed 20 March 2011].

Sigurdson, J. (2004), ‘The Sony-Ericsson Endeavour: Part 1’, Institute of Innovation Research of Hitotsubashi Unniversity, Working Paper, (Tokyo: Japan).

Tsang, E.W.K. (2000), ‘Transaction Cost and Resource-Based Explanations of Joint Ventures: A Comparison and Synthesis’, Organization Studies, 21(1): pp. 215-242.

Yan, A. and Luo, Y. (2001), International Joint Ventures: Theory and Practice. (New York and London: M.E. Sharpe, Inc.).

Zajac, E.J. and Olsen C.P. (1993), ‘From transaction cost to Transactional Value Analysis: Implications for the Study of Interorganizational Strategies’, Journal of Management Studies, 30(1): pp. 131-145.

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