International Joint Venture on Globalization - MyAssignmenthelp.com

Question: Discuss about the International Joint Venture on Globalization. Answer: Introduction Globalization in the current time means incorporating the economy of the country with the economy of whole world. Sometimes, for some countries the means of globalization is to open up the economy for the foreign direct investments by providing the opportunities to foreign companies to invest in various fields of country. In simple words, globalization can be described as having the whole world as one market. It is the process of growing the economic interdependence between the countries in all over the world (Gutterman Brown, 2011). The globalization includes cross-border movements of the products and goods, technology, capital, services, information and people along with the economic activities by crossing the national boundaries. It is basically focused on adopting the global position in terms of marketing, human resource management, manufacturing, lancing and other areas of business. There are various modes of entry by which organizations are able to invest in the foreign market such as merger and acquisition, joint venture, strategic alliances, and restructuring etc (Simonet,2012). This report focuses on the successful mode of entry i.e. joint venture and impact of this process on the globalization. The report describes the role and advantage of joint venture in expanding the business across the national boundaries. Along with this, the report discusses the reason of the joint venture done by the organizations at the global level. Joint venture: Definition It can be seen that the competition in the international market is growing continuously and many companies are using various alliances to enter in the new market. For this manner, they learn new skills, share risks, transfer knowledge, resources and competences with other companies. So, use of the joint venture is increasing dramatically in both, domestic as well as international market. By the process of joint venture, companies are able to enhance their competitive advantage by sharing the assets and resources with the local and foreign partners. For understanding the term joint venture, it is important to take a view on the various definitions of joint venture provided by the literatures (Utzon Hede, 2014). There are lots of scholars who have given various concepts from the different aspects. According to the Mariti and Smiley (1983), joint venture is the cooperation agreement between two different companies to form a third independent company for the business operations. Further, Park and Ungson (1989), the term joint venture can be described as the contractual agreement for creating the separate legal entity under which the parent company take ownership with the conditions and provisions by the legal document. So, joint venture among the multinational companies, the foreigner company cooperates with the local companies to form a third company. This third company is helpful to local companies in sharing the risks and improving the competitive advantage in the market. There is the joint control of both partner companies on the third company as it is the combination of different culture and organizational backgrounds (Corri, 2012). Reason to form joint venture It is an important question why one company cooperates with other company or what are the basic objectives behind participating in the joint venture. Generally, by the joint venture, the organizations are able to spread risk among them. Joint venture improves the capacity of the organizations for the capital investment and financial support. Basically, joint venture is the source of the learning for the partners which are involved in the joint venture process. Based on the study, there are some benefits in the joint venture i.e. competitive benefits, strategic benefits and internal benefit. Internal benefit can be described as the internal strengths that cab generated by the company within the joint venture. Those internal strengths include getting managerial knowledge, risk sharing, generating profit, and achieving knowledge and learning. Other one benefit is competitive benefit for the companies in joint venture. The process of joint venture can be effective and powerful tool to enhance competitive strengths of the companies. The competitive benefits for the companies include developing effective competition, response to the impact of globalization and influence over the industry structure. Last benefit is the strategic benefit. In the strategic benefit, joint venture is helpful for the companies to change their strategy at the global level. For instance, one biscuit company can be able to change its original market to producing biscuits to producing all types of breakfast products after cooperating with the business with the food manufacturing company. By this collab oration, the biscuit company can expand its business from domestic market to international market (Jing'an, 2013). So, there are various reasons for the formation of the joint venture between the companies. Joint venture can provide the resources and skills that are not available at any reasonable cost. Along with this, it can also be risky for the companies in terms if ability and willingness. The success of the joint venture depends upon both the partners and their roles in the joint venture. So, before entering in the process of joint venture, companies must understand the reasons for entering in the joint venture. If any company does not have sufficient financial resources for achieving the business objectives then that company can enter in the joint venture process. By the joint venture, company may seek for the partner to share the financial burden and many other risks of the business. A company can establish the joint venture with the foreign partner in the global market and can adopt market penetration in the foreign market. The company seeks to the foreign partner to provide the knowledge of local preferences, government regulations, customs and the advertisements in that country. By the joint venture, the company entering in foreign market is able to satisfy the rules of that country (Stewart Maughn, 2011). If any company wants to access the skills and technical skills of another company then joint venture is the best option for that company. By the joint venture, managers of both the companies would be able to exchange some information related to existing and new technologies. Any company may select the structure of joint venture rather than the network of contractual relationship. To ensure the good position in the market, the process of joint venture is important and effective. By managing research work, distribution, manufacturing and technology, joint venture is the effective alliances for the companies. Companies may use joint venture to decrease the cost incurred in the production or manufacturing of the products. By the joint venture, companies are able to have some control over the quality of the process and technology which can be used to complete the manufacturing activities. Process of international joint venture The process of joint venture can be understood based on various perspectives. According to the Culpan (2002), the process of joint venture can be described as the decision-making process among the partners. There are four various different stages while the organizations establishing joint venture i.e. initial, formation, operation and outcome. In the initial stage of joint venture, the companies decide about talking the step ahead towards the joint venture for achieving specific advantage in the business. If the business benefits are free of risks and costs then the companies decide to take the step further in joint venture process. On the other hand, if there is high risk and cost involved in the process, and then they have to take the step against the joint venture and have to select other options. After the initial stage of the decision, next stage is formation stage that is involved in making different follow-up decisions into place. These types of decisions are based on the selection of right and appropriate business partner and type of the joint venture. The decisions made by the organizations have important value in the whole process of joint venture. High level of failure in the strategic partnership happens due to wrong selection of the partner companies. The process of selecting the partner is very important for the joint venture. According to Culpan, there must be compatibility during the process of joint venture and he suggested that the success of joint venture depends upon the compatibility of the partners. Basically, there are two types of compatibility i.e. resources and cultural compatibility. Further, during the formation stage another decision made by companies is the selection of joint venture. According to the researchers, there are three traditional types of joint ventures based on the ownership patterns. First one is majority equity ownership, second one is equal ownership and last one is minority equity ownership. The type of the ownership or joint venture ultimately impacts the procedures of the joint venture among the companies (Ahmed Pang, 2009). Third stage in the joint venture is the operation stage in which the process of joint venture is analyzed based on the control and performance assessment. The performance of the joint venture can be analyzed based on either assessing the degree of satisfaction level of the partner in joint venture or evaluating the profit or sakes volumes made by the joint venture. Some of the controls can be exercised by the partners based on their stake. One of the most effective and common way to control over the joint venture is to hire expatriate managers. Along with this, company can exert the control by outcome based control in which the partner companies pay attention on the profit and enjoy the autonomy (Forbes, 2013). Last stage in the joint venture is the outcome stage to analyze whether to continue or leave the joint venture in the business operations. This decision is based on the performance of the joint venture for the partners. The partners involved in the joint venture must formulate the exit strategy also if the joint venture does not meet the requirements of the business objectives. The formation stage of joint venture has important strategic value for the success of the joint venture. By implementing this stage, partners are selected by the companies based on the compatibility in terms of culture and resources. Benefits of international joint venture Generally, companies come together to establish the joint venture when they believe that they will not be able to get success on a specific project, business or product. In such situation, companies seek for the partnership with other companies in terms of formation of joint venture. There are some key benefits of formation of joint venture between two companies. By the formation of joint venture, the companies are able to share their tangible and intangible assets for achieving common goals. For instance, two or more companies may collectively own the intellectual property which is required to develop a new technology and product. It is understood that none of the individual company has all the IP rights to complete the projects. Further, in the joint venture, one company may provide the cash and fund and another company may supply the property rights suppliers equipments, and other assets (Lande, 2014). Another key benefit of joint venture is sharing cost between the partners. Joint venture allows the companies to undertake the venture and share each cost equally. Labor and management, research and development, supply and administrative cost, distribution cost can be reduced significantly for each participants. Along with this, economies of scale may also be reduced because of the high level of efficiencies of joint production (Churchwell, 2004). Joint venture allows the companies and participants to share their business risks when creating any new product or service or expanding the business in a new country. There can be various risks while entering in the new market. Companies may not get enough revenue to make development cost so by the joint venture; companies would be able to share the resources and costs to reduce the burden of risks in the business. By the formation of joint venture, companies can share the business experience and expertise, technological capabilities, industry knowledge, and many other expertises which are important for the business. For example, one company may have experience and knowledge of the business for developing a product then that would seek for the joint venture partner which can contribute with the fund or one that has more experience in that specific industry as compared to others (Lupton Beamish, 2009). Joint venture is the key process for the companies to enter in the new market. Joint venture enables the companies to access the high growth market. By this, both the partners may get the access to the customers or suppliers. One of the partners may have the needed intellectual property for the venture and on the other hand, another may have the distribution networks to target the markets and customers. Despite of the advantages and benefits, there are some challenges which have to face by the companies while forming joint venture in the business. While achieving the business objectives, there can be conflicts among the partners due to different culture, background, risks and decision making process. Some of the challenges in the international joint venture are described below: The parent-specific characteristics are important attribute of the company that includes ownership type, reputation, international culture, practices and policies. Sometimes, these policies and practices can be the cause of conflicts in the operations of joint venture as they reflect different methods, requirements, and procedures. Different leadership styles management behaviors and the culture of organizations may create problems and conflicts among the partners and managers (Deloitte, 2010). Issues of different regulations There can be conflicts in the operations of joint venture due to the regulations of the host and home government as the managers in the international joint venture have to act based on the regulations of the government. There can be conflicts due to the rules and policies of two governments on same issue (Zheng, 2010). The host government may have own objectives and concerns and they may use the power by political system, economic resources and various opportunities. There can be conflicts due to some actions of the host government i.e. restrict outbound transfer of fund, restriction on transferring the prices, maximizing tax revenues, pressure on the joint ventures and MNCs to increase the product line etc. There can also be some regulations such as export controls, foreign corrupt practices, antitrust law, tax and accounting, staffing and many others (Hieu, 2013). Final and important reason for the conflict among the partners of joint venture is cross cultural issues. According to the study of various researchers, there are various cultures involved in the international joint venture. Cultural distance can occur between the partners of the joint venture. The cultural distance can lead the communication problem and impact on the organizational learning. Further, cultural differences can increase the managerial conflicts because of the misunderstanding and lead additional costs. Cultural diversity can impact the partner company approaches to conflict resolution that can impact the business operations negatively (Oeve, 2010). Current situation of the globalization suggests that international joint venture is important for the success and survival for the multinational companies. Globalization is one of the big reasons for the organizations to form joint venture for the growth of the business. International joint venture is very common today and it can be seen in one of the good example i.e. Wal-Mart has done successful joint venture with Mexicos Cifra. These types of joint ventures indicate that that domestic company can get benefit by partnering with the foreign companies to get an effective presence in the global market. In the 21st century, international joint venture is helping in facing the new challenges in environment. Joint venture provides various types of support to the companies in business activities. In the time of globalization, every industry is differing from each other because of their structure, core competencies and funding focus. Along with this, joint venture increases the market powe r of the participants in the business activities (Shahzad, 2008). Conclusion From the above analysis, it is observed that in the current time of globalization, joint venture is the strategic alliance which allows the partners to share their business experiences, risks and profits mutually. By the discussion in the report, it can be said by the process of joint venture companies are able to enhance their competitive advantage by sharing the assets and resources with the local and foreign partners. Joint venture can provide the resources and skills that are not available at any reasonable cost. Joint venture improves the capacity of the organizations for the capital investment and financial support. References Ahmed, A. 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