International Joint venture Essay Example for Free

internationalistic conjugation guess EssayInternational Joint proceeds (IJVs) argon becoming increasingly popular in the ancestry world as they aid companies to form strategic alliances. These strategic alliances allow companies to gain competitive vantage through access to a partners resources, including merchandises, technologies, capital and people. International Joint Ventures be viewed as a practical vehicle for knowledge transfer, such as technology transfer, from multinational expertise to local companies, and such knowledge transfer usher out contri besidese to the performance modifyment of local companies. Within IJVs one or more of the parties is located where the operations of the IJV take place and also involve a local and foreign company. Basic Elements of an IJVContractual Agreement. IJVs atomic number 18 established by express contracts that consist of one or more agreements involving two or more individuals or organizations and that are entered into f or a specific business purpose.Specific Limited Purpose and Duration. IJVs are formed for a specific business objective and can reserve a limited life crossbreed or be long- bourne. IJVs are frequently established for a limited duration because (a) the complementary activities involve a limited amount of assets (b) the complementary assets have only a limited service life and/or (c) the complementary production activities exit be of only limited efficacy.Joint Property Interest. for to each one one IJV participant contributes property, cash, or other assets and organizational capital for the pursuit of a common and specific business purpose. Thus, an IJV is not merely a contractual relationship, but rather the contributions are made to a newly formed business enterprise, usually a corporation, limited liability company, or partnership. As such, the participants acquire a enounce property interest in the assets and subject matter of the IJV.Reasons for Forming a Joint VentureTh ere are legion(predicate) motivations that lead to the formation of a JV. They includeRisk Sharing Risk sharing is a common reason to form a JV, particularly, in highly capital intensive industries and in industries where the high costs of product development equal a high likelihood of failure of any particular product.Economies of Scale If an industry has high amend costs, a JV with a larger company can provide the economies of scale necessary to compete globally and can be an effective charge by which two companies can pool resources and achieve critical mass.Market Access For companies that lack a basic understanding of customers and the relationship/infrastructure to leave their products to customers, forming a JV with the right partner can provide instant access to established, efficient and effective distribution channels and receptive customer bases. This is grand to a company because creating new distribution channels and identifying new customer bases can be extreme ly difficult, time consuming and expensive activities.Geographical Constraints When in that respect is an attractive business opportunity in a foreign market, partnering with a local company is attractive to a foreign company because penetrating a foreign market can be difficult both because of a lack of experience in such market and local barriers to foreign-owned or foreign-controlled companies. financial backing Constraints When a company is confronted with high up-front development costs, finding the right JVP can provide necessary financing and credibility with third parties.BenefitsMany of the benefits associated with International Joint Ventures are that they provide companies with the opportunity to obtain new capacity and expertise and they allow companies to enter into related business or new geographic markets or obtain new technological knowledge. Furthermore, International Joint Ventures are in most cases have a short life span, allowing companies to make short term commitments rather than long term commitments. Through International Joint Ventures, companies are given opportunities to increase profit margins, accelerate their revenue growth, produce new products, pad to new domestic markets, gain financial support, and share scientists or other professionals that have unique skills that will benefit the companies. StructureInternational Joint Ventures are developed when two companies work together to meet a specific goal. For example, Company A and Company B first begin by identifying and selecting an IJV partner. This go involves several steps such as market research, partner search, evaluating options, negotiations, business valuation, business training, and due diligence. These steps are taken on by each company. There are also legal physical processs involved such as IJV agreement, ancillary agreements, and regulatory approvals. Once this process is complete, the IJV Company is formed and during this final procedure the steps taken are formation and management.ManagementThere are two types of International Joint Ventures predominant parent and shared management. Within dominant parent IJVs, all projects are managed by one parent who decides on all the functional managers for the venture. The board of directors, which is made up of executives from each parent, also plays a key role in managing the venture by making all the operating and strategic decisions. A dominant parent enterprise is beneficial where an International Joint Venture parent is selected for reasons outside of managerial input.FinanceWhen two or more partners get together and form an International Joint Venture agreement, they must decide early on in regards to what the financial structure will entail as this will aid in management and control. whatever of the steps include establishing the capital required to start the IJV, the impact of securing a strong strategic alliance partner, and financial reporting. Once an arrangement is made, a tax-pl anned vocalise venture will be created which will aid in maximizing the after-tax returns.Factors affecting IJVEconomic FactorsPoor formation and planningProblems that arise in joint ventures are usually as a result of poor planning or the parties involved being too hasty to set up shop. For 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 . Parties must suffer attention to several analysis both of the environment and customers they hope to operate in. Failure to do this sets off a bad tone for the venture, creating future problems. unthought-of poor financial performanceOne of the fastest ways for a joint venture is financial difference of opinions in the midst of parties. This usually happens when the financial performance is poorer than expect any due to poor sales, cost overruns or others. Poor financial performance could also be as a result of poor plan ning by the parties before setting up a joint venture, failure to approach the market with sufficient management efficiency and unanticipated changes in the market situation. A good solution to this is to evaluate financial situations thorough before and during very step of the joint venture.Management problemsOne of the biggest problems of joint ventures is the ineffective blending of managers who are not used to working together of have entirely different ways of approaching issues affecting the organization. It is a well-known fact that many joint ventures issue forth apart due to misunderstanding over leadership strategies. For a successful joint venture, there has be understanding and compromise between parties, respect and integration of the strengths of both sides to overcome the weaker points and make their alliance stronger. Inappropriate management structureIn a bid to have equal rights in the venture, there could be a misfit of managers. As a result, there is a major slo wdown of decision making processes. Daily operational decisions that are go around made quickly for more efficiency of the business tends to be slowed down because there is now a committee that is in place to make certain(a) both parties support every little decision. This could distract from the bigger picture leading to major problems in the long run.Cultures FactorsWhen a joint venture is formed, it is literarily an look for at blending two or more cultures in the hope of leveraging on the strength of each party. Lack of 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.Pros and Cons for IJVThe joint venture is becoming a popular way for companies that outsource their operations to retain a put in of the ownership pie. The creation of a new legal entity during the launch of a joint venture comes with its share of ups and downs. On the plus sideJoint ventures modify companies to share technology and complementary IP assets for the production and delivery of innovative goods and services. Joint ventures can be used to reduce political friction and improve local/national acceptability of the company.Joint ventures may provide specialist knowledge of local markets, entry to required channels of distribution, and access to supplies of raw materials, government contracts and local production facilities.In a growing number of countries, joint ventures with host governments have become increasingly important. These may be formed at a time with State-owned enterprises or directed toward national champions. On the minus sideA major problem is th at joint ventures are very difficult 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 favor of wholly owned subsidiaries in other countries. Problems occur with regard to management structures and staffing of joint ventures. Many joint ventures fail because of a conflict in tax interests between the partners.Disputes AgreementsDisputesWhen two or more partners agree on an International Joint Venture, there are possibilities for disputes to arise. Particularly in IJVs, there can be issues between the partners who are likely to want their home countrys governing law and jurisdiction to apply to any disputes that may come up therefore, to avoid such a problem, a neutral governing law and jurisdiction is chosen in some cases. A popular dispute resolution technique used in IJVs is arbitration however, many times a court process is given priority as this carcass has more authority. Other dispute resolution strategies utilized are mediation and litigation. AgreementsEntering into an International Joint Venture agreement begins with the selection of partners and then loosely this process continues to a Memorandum of Understanding or a Letter of Intent is signed by both parties. The Memorandum of Understanding is a archive describing an agreement between parties. On the other hand, a Letter of Intent is a document outlining an agreement between the parties before the agreement is finalized.Examples of successful IJVSony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones. The stated reason for this venture is to combine Sonys consumer electronics expertise with Ericssons technological leadership in the communications sector. Both companies have stopped making their own m obile phones. Omega Navigation Enterprises Inc. is an international provider of marine transportation services focusing on seaborne transportation of refined petroleum products. One of the vessels, namely the Omega Duke, is owned through a 50% controlled joint venture with Topley Corporation, a wholly owned subsidiary of Glencore International AG (Glencore).They have also formed an equal partnership joint venture company with Topley Corporation, namely Megacore Shipping Ltd.