Professional Documents
Culture Documents
International Joint Venture
International Joint Venture
International Joint Venture
competitive advantage through access to a partner s resources, including markets, technologies, capital and people.
y Practical vehicle for knowledge transfer, such as
assets and organizational capital for the pursuit of a common and specific business purposeSpecific
y Contractual agreement
y Established by express contract consist of one or more
agreements
identifiable financial and intangible profits and losses, as well as in certain elements of the management and control of the IJV
Objectives.
y The IJV participants share a common expectation
regarding the nature and amount of the expected financial and intangible goals and objectives of the IJV.
capacity and expertise y allow companies to enter into related business or new geographic markets or obtain new technological knowledge y allowing companies to make short term commitments rather than long term commitments
skills
specific goal.
y Process involves following steps:
y y y y y y y
Market research Partner search Evaluating options Negotiations Business valuation Business planning Due diligence
y Legal procedure:
y IJV agreement y Ancillary agreements y Regulatory approvals
y Final steps
y Formation y Management
y Shared management
y Both parents managing the enterprise y Each parent organizes functional managers and
y Dominant parent
y All projects are managed by one parent knows as
working parent
y It decides on all functional and operating decisions
partner
y Financial reporting y After this arrangement a tax-planned joint venture will
be created
y Economic Factors
y Unexpected poor financial performance y Poor formation and planning y Inappropriate management structure y Management problems
y Unexpected poor financial performance y Fastest ways for disputes between parties is financial disputes due to poor performance than expected.
y Reasons for poor performance:
y Failure to approach the market with sufficient management
efficiency
y Unanticipated changes in the market situation.
parties being too hasty. Example: a marketing strategy may fail if a product was inappropriate for the joint venture or if the parties involved failed to appropriately asses the factors involved
y Inappropriate management structure y There could be a misfit of managers. As a result , there is a major slowdown of decision making processes. y Management problems y Biggest problem is the ineffective blending of managers. Having entirely different ways of approaching issues.
y Misunderstanding over leadership strategies.
customers and a stronger body. To ensure a JV's partnerships are as profitable as possible, it helps to look at them from the customer s point of view. The features a JV partnership should aim to address for an effective marketing campaign: Channelling the expertise and strengths of both parties to maximize value for the customers and stakeholders while downplaying the weaknesses and presenting a united font
understanding of the cultures of the individual parties poses a huge problem if not addressed. A common problem in these multi-cultural enterprises is that the culture is not considered in their initial formation. It is usually assumed that the cultural issues will be addressed later when the new unit has been created. Usually, compromises are reached and certain cultural from the parties are kept on while others are others are either out rightly discarded or modified
and complementary IP assets for the production and delivery of innovative goods and services.
y For the smaller organization with insufficient finance
and/or specialist management skills, the joint venture can prove an effective method of obtaining the necessary resources to enter a new market. This can be especially true in attractive markets, where local contacts, access to distribution, and political requirements may make a joint venture the preferred or even legally required solution
local markets, entry to required channels of distribution, and access to supplies of raw materials, government contracts and local production facilities
host governments have become increasingly important. These may be formed directly with Stateowned enterprises or directed toward national champions.
y There has been growth in the creation of temporary
consortium companies and alliances, to undertake particular projects that are considered to be too large for individual companies to handle alone (e.g. major defence initiatives, civil engineering projects, new global technological ventures)
exporting capital and thus make the funding of new overseas subsidiaries difficult. The supply of knowhow may therefore be used to enable a company to obtain an equity stake in a joint venture, where the local partner may have access to the required funds
to integrate into a global strategy that involves substantial cross-border trading. In such circumstances, there are almost inevitably problems concerning inward and outward transfer pricing and the sourcing of exports, in particular, in favour of wholly owned subsidiaries in other countries.[
y Problems occur with regard to management structures
management, via a central treasury, may lead to conflict between partners when the corporate headquarters endeavours to impose limits or even guidelines on cash and working capital usage, foreign exchange management, and the amount and means of paying remittable profits.
y Many joint ventures fail because of a conflict in tax
the partners are, or become, incompatible. For example, the multinational enterprise may have a very different attitude to risk than its local partner, and may be prepared to accept short-term losses in order to build market share, to take on higher levels of debt, or to spend more on advertising. Similarly, the objectives of the participants may well change over time, especially when wholly owned subsidiary alternatives may occur for the multinational enterprise with access to the joint venture market.
likely to want their home country s governing law and jurisdiction to apply to any disputes that may come up
y To avoid such a problem, a neutral governing law and
arbitration; however, many times a court process is given priority as this system has more authority.
y Other dispute resolution strategies utilized are
agreement begins with the selection of partners and then generally this process continues to a Memorandum of Understanding or a Letter of Intent is signed by both parties.
y The Memorandum of Understanding is a document
intent.
y Letter of Intent is a document outlining an agreement
y IJV in China
y An IJV is an attractive way to get into Chinese market for
the people who are unfamiliar with the completed culture and the less opened market. But China is becoming more and more global and familiar to the world.
y Two main types of IJV in China y Equity Joint Ventures y Cooperative Joint Ventures
overseas and a Chinese individual, enterprises or financial organizations approved by the Chinese government.
y Companies in an equity joint venture share both mutual
the foreign partners, and no minimum investment for the Chinese partners.
y A joint venture is free to hire Chinese nationals without
the interference form government employment industries by abiding Chinese Labor Law, and purchase land, build their own buildings, and privileges prevented to representative offices.
technology-based and have a substantial requirement for fixed assets, for example infrastructure and volume manufacturing.
cooperative venture and the contributions made by the investors are not necessarily expressed in a monetary value. These contributions can include excluded in the equity joint venture process can be contributed such as labour, resources, and services.
y Greater flexibility in the structuring of a cooperative
venture is also permissible including the structure of the organization, management, and assets.
significant role in the reform and liberalization of the laws governing foreign investors as part of Turkey's economic program adopted after 2001.
y Turkey lies on the borders between Europe and Asia
and is used as a way to achieve strategic goals to enter into the Asian or European market, which is important for those wanting to entre EU market since Turkey signed the European Customs Union (ECU).
y Commercial company:
y A Commercial Company is registered and recognized as
an unlimited partnership (general partnerships) limited partnerships (special partnerships) companies limited by shares (stock corporations), limited liability companies (corporations without shares) cooperative companies (cooperative societies)
y Ordinary Company
y Ordinary Company governed by the Turkish Code of
as a vehicle for foreigners who want to partner with Turkish entities or participate in a tender and are ideal for achieving relatively short-term specific objectives for example construction of a bridge.
benefits of international business. y Most businesses did not have economies of scale by global standards y Control on collaborations restricted the choice of technology and manufacturing methods.
different modes of entry. y Foreign players saw India as a land of opportunity to take advantage of low cost of production. y joint venture become a preferred mode of entry in Indian market.
Sectors Mining (commercial) Banking, Airport Insurance Alcohol distillation and brewing, floriculture, horticulture, animal husbandry, petroleum and natural gas, construction and development, SEZ s and free trade, warehousing zones, trading etc. Telecommunication Data published: 8 December 2008
49%
y Virgin Group and Tata Tele Services y Maruti ltd. and Suzuki Motors y Hero cycles and Honda motors y Tyson foods and Godrej Agrovet y Marks & Spencer and Reliance Retail
when:
y Aims of original venture met y Aims of original venture not met y Either or both parties develop new goals y Either or both parties no longer agree with joint venture
aims y Time agreed for joint venture has expired y Legal or financial issues y One party acquires the other
(Japan)
y Formed in 1983 but called off in 2001 y Causes of failure of JV attributed to: y Uneasy relation between the two partners, in early 90 s TVS lobbied hard against Suzuki increasing its stake in the JV company
y Suzuki s contribution to the JV was shrinking.
y 40:60 JV was formed in 1993 and called off in 2001 y Causes of failure of JV
y GE was a less known brand among the customers at that
time y Off take of high capacity refrigerators and washing machines failed to match expectations. y JV failed to meet projected turn over (against a turnover of Rs 35 billion for the 1996-97 fiscal, the JV managed only Rs 8.13 billion in 1998-99)