Partner Selection in Joint Ventures Essay
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Achieving constant business growth, in terms of size, sales, technology, skills, profits, and a host of other factors is the undeniable primary priority of most business corporations in today’s intensely competitive business scenario. Spurred by constantly changing technological, economic, and political conditions, most business managements continue to look towards achieving constant all round growth, not just to obtain competitive advantage and to satisfy their stakeholders, but also to fuel market prices of company shares, business valuations and the concomitant increases in performance bonuses and management remuneration (Beamish, 1988).
Businesses have traditionally grown through strategies of internal growth and acquisition, acquisitions often enlarging the size of businesses manifold, much more in fact than organic internal growth could ever have done (Beamish, 1988). The recent acquisition of Arcelor by the Mittals of London is illustrative of how an acquisition can propel a company to the forefront of an industry in terms of size, sales, geographic spread, and profits.
Capital acquisition, though undoubtedly the most effective vehicle for achieving strategic growth requires significant resources and is unfortunately not a very viable option for most companies, especially those which are young, dynamic, ambitious, and look towards achieving fast growth through enlargement of geographical spread, entry into new territories, accessing of new and more sophisticated technology, and enhancement of product portfolio (Gannon, 1993).
Swallowing smaller businesses not being very possible for such organizations, their route for growth leads them towards forging alliances with other business firms through various arrangements, be they strategic alliances, representations, franchises or joint ventures (Gannon, 1993). Joint ventures (JVs) allow two business firms, irrespective of their legal status, (private/public stock corporations or partnerships) to come together through a legal entity in which both companies contribute equity and share in the control and profits of the venture.
Very obviously joint ventures have many advantages (Geringer and Hebert, 1989). They enable and empower companies to increase and improve their operations by using their strengths, spreading costs as well as risks, enhancing financial access and strength, achieving economies of scale, and accessing technologies and markets (Geringer and Hebert, 1989).
The JV process opens up companies to new thoughts, helps in increasing competitive advantages and enables them to achieve their strategic goals through the creation of synergies with other organizations, acquisition of technologies and skills and diversification of activity (Geringer and Hebert, 1989). With such a range of advantages to be gained from the activity the setting up of joint ventures has come to form an integral part of the corporate strategy of most progressive and ambitious companies. Definition of Problem
Whilst joint ventures have become an accepted, popular and much used mechanism for the attainment of a number of strategic objectives of different companies, their rate of success ironically continues to be low (Harrigan, 1988). Some management experts, who have in the past attributed this low success rate to basic incompatibilities between different cultures and attitudes towards business, are at a loss to explain why the failure rate of such activity continues to be high even for ventures between companies that belong to the same country (Harrigan, 1988).
To take the issue a step further there have also been occasions of JVs failing between two companies, not just of the same country but also of the same group (Harrigan, 1988). Although many such ventures do progress to doing business and making profits, their overall achievements tend to be less than what was originally envisaged, such mediocre results often leading to loss of partner interest, the relegation of the venture to that of a less important activity and subsequently to the search for buyers for the business (Beamish, 1988).
International joint ventures of course fare even worse, a fact that has led many experts to wonder whether the establishment of joint ventures are strategically sound decisions or fall into the category of basically risky business decisions whose success depends on the playing out of a number of unpredictable factors (Beamish, 1988). One of the major reasons leading to failures or their less than happy performances of joint ventures, management experts believe, lies with the coming together of wrong people, or to put it in the perspective of one of the partners, the wrong selection of a JV partner (Geringer, 1988). Research Objective
This research paper aims to investigate the various issues that are considered during the selection of JV partners, particularly the strategic reasons that are involved in the formation of international joint ventures, the areas of difficulty and the potential points of conflict that could occur between partners during the course of the JV, and the different issues that need to be considered at the time of selection of partner and the sealing of the JV. Methodology and Structure The methodology for researching this paper follows from the framing of the research objective and deals with the most appropriate means of accessing relevant data.
Such methodology involves choosing between adoption of quantitative or qualitative research methods and deciding whether to obtain data from primary and/or secondary sources. Quantitative methods, being best suited for research papers that require data to be obtained from many respondents, are not appropriate in the present context. Considering the complexity of the issue being investigated, the subjective nature of information to be analysed, and the interpretation required, as also the need to answer “how” and “why” questions, the paper calls for the adoption of qualitative methods.
The methodology entails collection of information from secondary and primary sources through the study of available literature on the subject, the bibliography at the end of the paper listing the various publications studied for the purpose. Whilst the study would have been qualitatively enhanced by direct 121 interviews with managers with experience of international joint ventures, such interviews are difficult to arrange at this moment because of the economic crisis and the tremendous disturbance in the corporate world. The paper thus depends exclusively upon a study of the relevant literature for arriving at the findings.
Information available on JVs, although extensive and qualitatively rich, is fragmented, and information has had to be obtained from various sources. Whilst the paper is limited by lack of information from individuals with direct first hand experience of joint ventures, efforts have been taken to consult a variety of information sources from different authors and institutions for purposes of cross validation and verification. The review of literature is taken up in the following section, which in turn is followed by an analysis of the findings, conclusions, and suggestions.