How to Manage International Joint Venture Successfully Essay

There is serious increase in the number of organisations seeking to operate in today’s highly competitive global markets with sustainable competitive advantage. (Taylor, 2004; Ernst & Halevy, 2004). In order to achieve this international expansion, companies use different market entry strategies. Earlier study on IJVs reveals that international joint ventures are the most common means of internationalization (Ernst & Halevy, 2004). This paper shall present a review solution on how to achieve successful IJV alliance In general, international joint venture (IJV) is an equity sharing arrangement between a local firm and a foreign cooperation (government or private) coming together by putting all necessary resources together, sharing risk and operational controls to operate as one independent business entity to accelerate profit and growth or in order to achieve some strategic goals. (Craig C. Julian. 2000). In most IJVs, two companies merge together for the matter of ease and con venience, the two companies involve become the parent of the organization that surface from the merger (Geringer & Hebert, 1989). But there are situations where more than two companies form IJV, this is true in cases where already merged companies try to merge with other bigger companies to establish a single organisation â€Å"T0o compete in an international business environment, firms are forming joint ventures as a mechanism for the enhancement of global competitiveness.† (Cyr, 1995)† IJV can aid an organisation in achieving their business objectives in hostile and uncertain markets (Miller et al., 2007). Clayton-Smith (2012). Suggest that IJV â€Å"offer a great opportunity for multinational businesses to facilitate growth, to gain skill, capabilities, market access, etc.† (For example businesses can cut cost and boost growth by using the same human resources, deliver services with the same computing facilities and even share office infrastructures). IJV comes with many benefits, Kumar &Pavan (2012) describe benefits of IJV to an extent, that is, when companies partner together, they pro vide themselves strength, capacity and expertise to conquer new geographical markets, expand their product portfolio and also for diversification. There are few success stories associated with IJV, (Xerox &Fuji) decade of stormy partnership has survived well, with both companies praising their success on IJV alliance IJV alliances over the past decade have shown a promising future (Kumar&Pavan, 2012). Earlier research on IJV growth and risks by KPMG supports Kumar &Pavan (2012) claims. In (2005), A KPMG finding showed that 64% of US companies will opt for IJV alliances, and Also 52% decided to create a new alliance within two years. Various studies on IJV partnership showed a very optimistic future. Vast majority of executive’s reports show that their IJV alliance has generated about 40% in their annual revenue, Most times, IJVs are created so as to gain access into hostile and uncertain markets (Abroad), which might not be possible otherwise. Definitely two heads working together are better than one, in the same philosophy; two companies would work better than one. Obviously, there will be more resources available when you have two or more companies merged together This optimism of IJVs comes with huge risk, IJVs suffer from several draw backs, these draw backs are the primary reason behind the failure of a large number of IJV partnerships. Research by Kalmbach & Roussel (1999) reveals that 80% of IJVs have failed and only 20% were successful. Another similar study by Neal R. Goodman (2011) estimated 50 to 70 percent failure in International Joint Venture. Matthews (2001). produced a great piece of literature on the reasons behind the failure of IJVs, Matthews (2001) stated the following as defining characteristics of IJVs, â€Å"IJVs need strategic objectives, IJVs are full of management problems, IJVs need to adopt a viable organisation form, IJVs are always transitional structures You have to inject stability into IJVs- it is not there naturally† These characteristics can serve as possible drawbacks of IJVs. Hence giving room for criticism We can shuffle out some vital points from the above mentioned characteristics. The most important one of them is the â€Å"difficulty at the level of operation†. The concept of power control from multiple firms creates troubles and as a result affects the administration of the organisation. Before a merger, each company operate differently with their own set of policies, methods and strategies, when they merge and these fundamentals clash, it might result to problems within the organisation such inter- Organisational issues need serious attention and need to be dealt with in order for the venture to last. So, IJVs can serve as a backbone of organisational problems. These problems can as well cripple the growth of the organisation. Sometimes IJV fails due to the collaboration, culture, structured plans, control procedures, financial and legal mechanisms, and consensus management agreements in place (M.Nixon et al., 2012). Many of the Case Studies on IJV all tend to point to conflicts with vision ,trust, corruption , leadership struggles between both firms and as a result of this, troubles begins to fly in the face of IJV success, Typically. The company with the most shares in any IJV set up tend to have the highest form of authority or sometimes it is decided by voting, these are the methods used in setting up the management of the organisation in most cases. However this can be quite problematic in situations where companies involve have equal shares or even when one company has the minority. Proper representation of each company’s ideals and policies is off course a difficult job it becomes more difficult when the companies involve wide cultural differences. Failure to understand the ethics, values and norms of each other result to IJVs failure. Furthermore, Stability is always not associated with IJVs as it is very difficult to sustain stability in a venture. Many academics associate IJVs with a lifecycle, It is said that any organisation comprising of many different firms tends to be unstable short lived, Multiple firms forming an organization impart this inherent stability simply because of the variation in their individual nature, their culture, their role and their attitude. These cultural issues that adhere to IJV remain a major concern for an effective IJV collaboration. After a serious pounder on the drawbacks of IJVs, There are quite a few theories in place that can help achieve a successful IJV partnership. Kumar&Pavan (2012) defines collaborative strategy as the essential supporting structure for building successful alliances. According to Kumar&Pavan (2012), â€Å"collaborative strategy defines the factors the companies need to look at before forming a Joint Venture alliance. The following are the ‘Golden rules of partnership success’ as given by Cyr (1995)- * A balance of trust and self interest * Anticipation of conflicts * Clear definition of strategic leadership * Flexibility * Acceptance of cultural differences at the level of both the national culture and the corporate culture * Orchestration of technology transfer * Learning from the partner’s strengths In other to deal with some of the challenges that face IJVs today, it is very necessary to have a very strong strategic leadership in place, a leadership that is based by rules and procedures. With a stable leadership clearly in place, chances of conflict are minimized. The leader most be able to incorporate all the attitudes and views of both patties into policies and strategies that will help the organization prosper as a single entity Obliviously, when there are two or more companies within the alliance, every individual will be after the interest or profit that emerge from the venture, this is where the second point drift in, which is â€Å"Balance of self interest and trust† even supposing the international joint ventures has a dominant parent company in control, then interest of all companies involved must be kept intact. The companies involve must have a mutual trust in place and at all times be ready to share risk for the benefits of the organisation as a whole. The organisation at all time must be ready to resolve conflict between firms when they arise and also developing long term strategies for the future of the organisation. With trust in place within the organisation, companies tend to adjust to accommodate and have a clear understanding of each other’s nature of business. A clear understanding of each other’s nature of business (culture) can give a useful insight on how to create newer ways of operation in the organisation. In situations where companies come from different countries, National cultured is there to be coped with. Companies may emerge from the same country but different regions with different cultural setups, even in such cases the difference of cooperative culture is still there to be dealt with. Fair enough, this issue of culture difference can positively turn out as innovations in the field by learning from each other’s strength and weaknesses. Flexibility is a key to creating successful joint vent ures. Variation in cultural backgrounds is seen as a threat to the success of IJV, but it is as well considered that, the more the gap between the cooperating countries less is the chance of survival of the IJV (Barkema & Vermeulen, 1997). Adaptation is very important here. Obviously cultural variation can be quite problematic, but at the same time they can be useful when taken as lessons, and when mixed together to derive newer and better strategies of operation, by putting two or more cultures together not only will it boost growth but can also add to the consumer base. There is issue of management too, the management problem happen to be the most troublesome in IJVs, It is not the control that is the problem but the lack of effective communication. One of the industries that excel in IJV venture is the insurance industry, and good communication channel is among all partners is among the characteristics that contribute to the success of insurance IJVs, They try to maintain viable and con sistent internal harmony that is base on rules and procedures. Effective communication must be maintained at all time and throughout decisions making so that policies don’t appear unilateral or one sided More examples of successful IJVs emerge from Hungary where Hungarian companies inherit experience and knowledge from the parent companies. This is true of several companies from Hungary that have partnered with western organisation (Lyles & Salk, 2007). The western companies come in with new and better technology and also better ways of management and production, and this method have worked for the Hungarian companies with them having good results in return. So, it depends on the level of understanding and adaptability between the companies. Information, market and raw materials are mostly the necessary resources that are available during an IJV alliance.Utilization and circulation of these resources depend on the companies involved. However, the company that fails to utilise these resources end up getting terminated from the Venture alli ance. In 1997-98 up to 20000 IJVs deals were sealed in China (Zhang & Rajagopalan, 2002). One characteristic that help all these IJVs survive was that they were all formed under a governmental pressure. In this case, the intervention from government brought about stability within the organisation. Also companies were relieved off the tension of mutual dependencies which made the inter organisational relationships much easier. In this manner Inter partner credible threat was largely reduced. The rise of globalization and emerging economic power houses of Brazil, Russia, India, and China is seeing more new markets created. IJV will play a commanding role for multinational companies looking to partner with domestic businesses in those markets. As this review has shown the history of IJVs has not always been clear cut (it is a very difficult task to build a successful international joint venture alliance). The 80% failure in IJVs (Kalmbach & Roussel 1999) should not scare multinational companies as there are many different ways of facing this challenges that adhere to IJVs. Management and operation of the organisation must be clearly understood and controlled in a proper way and by the most appropriate individuals. All companies must involve in the operation of the organisation. No firm should be excluded in the affairs of the organisation. The companies involved should be open to change and adaptability so as to combine the best they can all offer. If these few aspect are properly practiced the IJV is doomed to survive Clayton-Smith, . (n.d). What makes a successful joint venture?. 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