PHILIPPINE CHRISTIAN UNIVERSITY

6.1. The Design and Management of International Joint Ventures

Submitted by: HOANG LE Submitted to : Prof. PORTIA CONDOVA SALVA

Outline

International Joint Ventures Why Company are Creating International JVs

Requirements for International JV Success

Commitment and Trust

 Joint Ventures
Are formal agreements between two or more firms where a new separate entity is created for the purpose of producing or distributing goods and services.
The level of commitment and risk is considerably higher then in informal alliances. Firms can also enter into a short-term joint venture to learn a specific process, technology, or market from their partner. No need for equal ownership. Equity based on cash or other contributions.

 International Joint Ventures

An international joint venture is a company that is owned by two or more firms of different nationality.
Strategic alliances vary widely in terms of the level of interaction and type, and equity joint ventures usually require the greatest level of interaction, cooperation, and investment. Joint ventures have moved from being a way to enter foreign markets of peripheral interest to become a part of the mainstream of corporate activity. The popularity and use of international joint ventures and cooperative alliances has remained strong. However, failures do exist and are usually widely publicized

 International Joint Ventures

New Markets To take existing products to foreign markets To diversify into a new business

Existing Markets

To strengthen the existing business

To bring foreign products to local markets

Existing Products

New Products

 Requirements for International JV Success

Testing the strategic logic

Partnership and Fit Complementary Needs Acquisition of capabilities due to learning Corporate culture compatibility Shape and Design Strategic freedom Managerial roles
Doing the Deal Trust vs. Legal considerations Making the Venture Work Managing Culture Differences Flexibility

 Requirements for International JV Success

Market Entry Execution
Joint venture implementation ensure that: Parties to the joint venture have shared goals for the joint venture

There are no ambiguities in the relationship

Each firms strategic position is such that the firm can fulfill its commitment to the joint venture Intellectual property is protected because a partner today may be a competitor tomorrow.

 Requirements for International JV Success

Negotiating the Agreement
International Joint negotiation issues: Equity contributions Management structure Prenuptial agreement

Decision making control

Majority ownership does not necessarily control: Operational decision Strategic decision In IJVs, strategic decision making take place at the level of IJVs board of directors or top management

 Requirements for International JV Success

Management Structure
Dominant partner: controls or dominates strategic decision making Often has majority ownership Treats the IJV as wholly owned subsidiary Shared management: both parent companies contribute approximately the same number of managers to the alliance organization Split control management control: partners usually share strategic decision making and split functional decision making Independent management structure: alliance managers act more like managers from a separate company. IJVs often recruit managers from outside the parent companies Rotating management: key positions rotate among partners: Popular in developing countries Trains management talent and transfers expertise

 Requirements for International JV Success

Choosing a strategic alliance management structure
If partners have similar technologies or know-how and contribute equally Shared management structure preferred If one partner has dominant equity position Dominant management structure more likely If partner have different technologies but contribute equally Split management structure preferred

 Requirements for International JV Success

Choosing a joint ventures management structure
Mature joint ventures move to independent structures as the joint ventures management team gains more expertise

Joint ventures in countries with a high degree of government intervention produce IJVs with local partner dominance
Independent management structures are more likely when the market is expanding, the venture does not require much capital., or the venture does not require much R&D input from its parents

 Commitment and Trust

Commitment: putting forth extra effort to make the venture work Attitudinal commitment: willingness to dedicate resources and efforts and face risks to make the alliance work If partners demonstrate these aspects of commitment, alliance will develop based on fair exchange Occurs when partners believe that they receive benefits from the relationship equal to their contributions Commitment also has a practical side: calculative commitment Alliance partner evaluations, expectations, and concerns regarding potential rewards from the relationship Businesses require tangible outcomes for a relationship to continue Commitment and trust go hand in hand Credibility trust: confidence that the partner has the intent and ability to meet promised obligations and commitment Benevolent trust: confidence that the partner will behave with goodwill and with fair exchange

 Commitment and Trust

Why is trust important? When there is no trust, partners hold back or take advantage of each other Formal contracts can never identify all issues that will arise Technology and knowledge also include tacit elements that can only be learned through trust Building and Sustaining Trust and Commitment Pick your partner carefully Know each sides strategic goals Seek win-win situations Go slowly Invest in cross-cultural training Invest in direct communication Find the right levels of trust and commitment

THANK YOU!