International Joint Ventures

  • Category:
    Management
  • Document type:
    Article
  • Level:
    Undergraduate
  • Page:
    2
  • Words:
    872

International Joint Ventures (IJV) Are a Useful Means of Overseas Expansion for Multinational Enterprises (MNEs)

Submission Date:

What are IJVs?

According to Stewart and Maughn, (2011 p1) asserts that there exist no one size fits all definition of IJV. Thus, the best definition is defined using certain arrangements, understandings and characteristics. Chan (n.d. p2) focusing on IVJ with the advent of the new millennium firms have taken a paradigm shift with expressed willingness to operate in inter-firm prospects with an objective of responding to challenges and opportunities that emanates from both new markets and traditional markets like IJV. Maughn, (2011 p1) an International Joint Venture is mostly defined as coming together of more than one business partners joining from different jurisdictions with a main objective of dividing rewards, sharing risks and exchanging resources from an enterprise joint.

Although not always, one partner in IJV can be located in the country where the joint venture takes place. Despite the fact that an IJV forms a partnership element, is formed purposely with a particular objective or specific project. Thus, IJV undertaking circles around duration, scope and purpose. The joint venture partners’ contributions mostly vary and they are usually defined as per partner in reference to the venture’s nature and individual capabilities. Despite the fact that implementation and sustainability of IJV require legal agreements, this is not enough the ventures should be evolving, living and practical relationships. Thus, the IJV call upon continued dialogue and positive interaction circulating between the decision-makers of the enterprise after the joint. The joint venture should be able to shift with management team and circumstance change perspectives. Chan (n.d. p2) most business partner joint their ventures since is seen as a substantial ground for sharing cost and risk, widening relationship networks, creating synergy, accessing to local markets and knowledge, and acquiring technology. Is good to note that IVJ is not only positive sided potential relationship as it comes with its own challenges. A firm that agrees to enter into an IJV joint it has profound ground for more complication. This is because the joint bring together diverse institutional environments and objectives partners. Share control and ownership results to continuity interdependence which may make each party become vulnerable to the other. Further, the partners’ joint may have mixed motives with competitions and cooperation elements being employed.

What are the circumstances under which MNEs internationalise using IJVs?

MNEs achieve foreign investments modes via various channels. Such includes, sole ventures, strategic alliances, equity joint venture, contractual operations and joint ventures (Wattanasupachoke, 2002 p16). The multinationals enterprise uses IJV in various platforms. First it is a strategy of enhancing foreign direct investment that enables large enterprises to expand to other foreign markets. The joint venture may establish as Greenfield investment or part of the already established firm. it is thus used for technological cooperating, R & D of product, distribution, sales and manufacturing. Joint-Venture is applied in various combinations and circumstances, concerning technology development, concerning time, countries, services, and products. Focusing on the firm’s view of critical significance is the party to the business (who is my business partner? and why?) in reference to the MNEs the foreign JV partner, business and their market. Also, the MNEs in IJV evaluate the partner in reference to the possibilities of attaining their business goals. Further, MNEs faces various challenges in decision making unlike in the case of whether the venture is a medium-sized and small, this is so because MNEs in assuming joint venture ought to have strong managerial systems from the IJV preliminary planning (Elo, 2-3). Thus, various approaches may help MNEs progression in a foreign market via IJV.

Macroeconomics approach

This model may take various aspects. For instance the Labour Concept: the New International division that explains shifting of industrial production firms from the industrialized countries to the developing countries where cheap labor is available. Also enterprise may choose to maximize their capital base by applying the capital circuit concept. The concept looks at the firms needs in a broad manner so that it may accumulate capital and increase profit as it extracts surplus value realized in the continuous circuit in process production.

Alternatively, MNEs may adapt the microeconomic approach principle in adapting to IVJ. The model incorporates various disciplines. One of them is the international production electric paradigm which is adapted from location theory, organization theory, trade theory and firm theory. It puts in place three interrelated and general concepts to evaluate and identify fundamental factors that trigger the initial cross-border thrust, and the development of the particular production. Thus in the midst of competition pressure increment on MNEs to increase or sustain profits regardless on the stage of the IJV, pattern and the extent of international production three key factors uphold the electric paradigm. They are: location-specific advantage, internationalism advantage, and ownership-specific advantage (Wattanasupachoke , 2002 p18).

References

Chan, D. n.d.. Control of international joint ventures: an integrative perspective. Sheffield Business School. [Internet]. https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&cad=rja&uact=8&ved=0ahUKEwj07I2vgaDMAhVBoRQKHY2JDMQQFghCMAU&url=http%3A%2F%2Fwww.managementcontrolassociation.ac.uk%2Fuploads%2FMCA%2520workshops%2Fworkshop%2520Feb%252014%2FChan.doc&usg=AFQjCNEewBG0wDFbQRYegmgYSxF_91KQFA, Accessed 4/22/16

Elo, M. 2009. International expansion through joint venture: situations and strategies from a network perspective. WIP Paper. IMP Conference, Marseille.

Stewart, M. R & Maughn, R.D. 2011. International Joint Ventures, A practical approach. Davis Wright Tremaine

Wattanasupachoke,T. 2002. Internationalization: motives and consequences. [Internet]. https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwil0J_lw6DMAhWHrxoKHQHHCq4QFgglMAE&url=http%3A%2F%2Fwww.journal.au.edu%2Fabac_journal%2F2002%2Fsep02%2Fabacjournal_article02_sep02.doc&usg=AFQjCNGYPYIoTHhMcB9IFcNKVACd72Mwmw, Accessed, 4/22/2016.