Over the past twenty years, there has been a surge appealing of companies approaching together, a lot of which were reflected in the favorite management press and the academics journals of corporate and business links being shaped. Many company now uses strategic relationship rather than competition among themselves to expand their business. They are formed for a number of reasons, which include new technology development, development to new home market, reducing manufacturing cost, new product development, capability to increase profit percentage, financial support and writing of economics risk, overcome legal and trade barriers and so many more. These are some of why cooperation sometimes called partnering, alliances or joint venture among many conditions are formed. Jv is one of the most popular varieties of strategic marriage and it utilises split business entities like assistance, limited liability company or relationship, this entity makes the involved functions to limit the liabilities involved. In recent years global difficulties has fostered many companies from many countries to go into international joint venture more stronger than previously, manufacturing companies, oil and gas companies, development companies, banking industries, automobile companies and so many more are creating the international joint projects.
As spouse selection is considered to be very important to truly have a successful collaboration, this module will be focusing on choosing the right partner in creating an international joint ventures. The answers will be focusing on the literature on how to select a good and successful partner when forming a joint venture. Also the next factors will be looked at in forming a successful collaboration:
The main characteristics to look for in a good collaborative partner, selection conditions and the strategic, political and tactical implications.
The factors that's determines the good companions match in collaboration.
And what both companies going into collaboration can do to make good collaboration condition.
As it was started in the objectives in the last chapter, this survey will be speaking about various factors that are would have to be highly considered in choosing the partner when building international jv, but before going further below are the definitions of some typically common terms of cooperation.
Different companies get into cooperation with different reasons, and the reason why many companies go into collaboration is to gain competitive advantages, entering new market and so many more. Collaboration accomplish shared eyesight, achieve positive effects for the audience included and it also build interdependent system to address issues and opportunities. It really is a world where almost anything, in principle, can be done since you are not tied to your own resources and competence only but by experiencing resources and skills of others. ( Huxham and Vangen, 2005). Associates of the collaborations needs to be ready and willing to share their vision, quest, vitality, goals and resources to have success.
Also Collaboration is the action of working together to generate or produce something for shared benefit. (Oxford Advanced Learner Dictionary, 2001).
http://ayanthianandagoda. documents. wordpress. com/2009/07/cooperation. jpg
Fig 1 collaboration
Source : http://ayanthianandagoda. files. wordpress. com/2009/07/collaboration. jpg
There are numerous different meaning for joint ventures, as experts opinions change significantly.
A jv is a proper alliance created by several get-togethers usually in businesses, partner together to talk about markets, belongings, intellectual property, knowledge and revenue. (Valerie, 2006).
Stephen et al. (1993) consider jv as a kind of cooperation. He later defined it as a distinct business totally created and jointly owned by two or more parent organisations.
Robert L. Wallace ( 2004, ) described joint venture as the coming together of two or more independent businesses where both of them have sole purpose of achieving a specific outcome that might be difficult for each of them to achieve individually.
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Fig 2 joint venture
. Source : http://www. internationaltradelaw. org/images/partnership. jpg
When joint projects crosses across the border, it becomes international joint ventures. International joint venture is thought as the joint projects that involve organizations coming jointly from different countries cooperating across national and cultural limitations. ( Aimin and Yadong, 2001). At times, international joint ventures are made by two companies in the same country but located in a country apart from their parent countries. (Geringer and Hebert 1989).
Though bulk involve two mother or father firms, one from international and the second one a local company. And yes it may involve partners with complex nationality and ethnic background. For example, Xerox Shenzhen company produced from Xerox (china) and fuji Xerox (US-Japanese jv in Japan. ).
International Joint Venture
Fig 3. International joint venture
Source : http://t3. gstatic. com/images?q=tbn:shC_GkI4UDgeCM:http://farm4. static. flickr. com/3504/3841640658_367ae3ab0d. jpg
There is a large difference between merger and acquisition, they shouldn't be mistaken to be the same. Merger is when two companies come together to form a new company while acquisition is when one company purchase another company.
Fig 4 merger and acquisition
source : class module
According to Ian Hewitt (2005), A company should not just go into cooperation just because other companies does, in reality different companies go into collaboration for different reasons. Here are several explanations why many companies does
Increasing competitive pressure : opponents or rivalries in the market is one of the major reasons that push some companies into joint venture.
Sharing cost and risk : one of the key reasons for joint venture is cost cutting down and risk showing. It helps to accomplish synergy through rationalizing of work and other fixed cost, and it also research and development job like pharmaceutical, electronics, aero-engine, telecommunication and so on. Joint ventures are frequently used in capital intensive project like power channels or infrastructural projects
Entering new marketplaces : partnering with another company already established in a specific market also helps in stepping into new and emergence market effectively looked after assists with marketing a preexisting products and service to clients.
Total-quality-management. Do more with less : it brings about an excellent management into business and help in achieving the companies targets in less time.
Access to new technology, technology understand how and customers : joint venture helps to access and to study from partner's technology, experience and skills as there's a fast change in technology improvement daily.
Improve access to financial resources : coming alongside one another of both companies increases the financial resources.
Expand customer basic : international jv also help expand customer bottom in by making use of partner's strength in different physical area and both develop a extensive network.
Developing services : a company can get into joint venture to provide new products or service to their current customers or new customer. Since it is jv, the companies can form a fresh products to market with their customers.
In this new wave of technology, you are unable to do it all yourself, you have to form alliances. Carlos Slim Helu.
Having considered several explanations why companies get into collaboration, it could sound interesting that cooperation is everything but an extreme treatment need to be taken whenever choosing the collaboration partner. Collaboration is good (when the right partner is determined) and it is bad (incorrect partner). Before going into information on selection requirements in choosing somebody, below are the types, gain and Hazards associated with cooperation.
Increased financial resources and stableness : it allows the lovers to contribute economically to the task within an appropriate ways to the joint procedure and it does increase the financial steadiness of the business.
Improve buying electric power and economies of size : it offers cost advantages and better purchasing capacity to increase the volume of business.
Expansion to new market : building joint ventures can assist in capturing a fresh market.
Share R & D, engineering, creation costs : joint venture helps when a company is trying to enter a fresh field of business, by forming jv with a firm already established available, it makes it easier to enter into the market. Examples include research institute and countrywide federal government level.
Shorten lead time : cooperation shorten lead times and it creates it possible to accomplish more in less time.
Loose overall control or desire to have control : if it's not well monitored, the stronger partner becomes a dominant and this can undermine the eye of the other spouse and it could eventually causes termination.
Cultural issue : the partners must understand each other's culture perfectly by doing an intensive research. Skilled team that can discuss in with people of different culture should be assigned to manage.
Foreign exchange risk : in joint venture, high volatility in the foreign exchange market, the activities of Us dollars, Yen, Pounds, Rupee, Franc and many more cannot be expected, and even for this reason in the essential oil transaction, it is normally accepted in the western world to trade in US dollars.
Communication and translation problems : multinational project can become more advanced if there is communication problem, and it is even better to have a translator or even two translators.
Loose personal information : specific company can lose their personal information plus they may wrap up in forming a fresh name and old customers devotion may be lost, though if the relationship is well maintained it will create new customer commitment.
Partner's failing : if the partner failed to deliver, this mat result in a serious consequence or termination to the deal while the goals havent been supposed.
There a wide range of ways in which collaboration can be produced, depending on the common aims of the firms involved. Collaboration can be grouped into two namely : those defining the framework of the partnership and those determining the technical or commercial purpose of the relationship. Here are few types of cooperation that may be formed.
Research Cooperation : which is most effective in medical research and high technology services.
Joint Design and Development : includes two or more companies coming alongside one another to share the chance of developing a new product and this often leads to joint or parallel production.
Joint Creation : when two companies consent to produce separate sub-assemblies of the final product which can brings about joint venture company.
Parallel Production : when same and similar product is produce in two or more countries and one spouse leads the introduction of developing facilities.
Licensing : formal contract between two companies where most important company allow to utilize it design or know-how, or even to manufacture something and it includes repayment of royalty fees. It may be of two types specifically ;licensing in and licensing out, or both.
Franchising : this involves third party to advertise proprietary products or services under the original supplier's brand e. g. stores and supermarkets, fast food outlet stores, petrol stations, etc.
Informal and Gentleman's Contracts : this is word of mouth contract usually between partners of common interest and trust is vital. It can be a starting place for formal arrangement.
Strategic Alliances : Michael and Srinivasa 1995) said it can be defined by together possessing the next three necessary characteristics;
Two or even more firm that unite to pursue a set of goals already decided upon
Partner firms reveal the great things about the alliance and control over the performance of the allocated task
Both contributes on a continuous basis in a single or more proper areas, e. g technology and product.
It does not have any legal form, this is a relationship developed between two or more companies that talk about (proprietary), participate in joint ventures, and develop hyperlink and processes to boost their performance of these companies. (http://www. apics. org/. ). It could lead to creation of jv company.
Strategic relationship : is a kind of strategic alliance in which the partners are associated with a non-controlling level of shareholding, either bilateral or unilateral. (W. J. Bacchus 2005)
Joint enterprise companies : this can be an self-employed business entity, it requires ownership, operational responsibility and financial risk and incentive.
As it was were only available in the objectives in the previous chapter, this survey will be concentrating on joint venture companies.
Companies that are usually more comprehensive and comparative in selecting international jv partners are more likely to achieve success. When there's a need for joint venture, choosing the right partner is another important factor. Only few companies today consider they can perform their goals and aims on their own but by seeking collaboration with another company to stay ahead in the current global economy, So because of this, there's been an high increase in the numbers of companies coming jointly around the world.
When a corporation is going into a joint venture, collaboration strategy need to be proven. Furthermore in this survey, it ought to be noted a company involved will be displayed by Company A and others that exist to choose from will be displayed by Potential partner A, B, C
The company A planning and operational periods can be set up as :
1st level 2nd stage 3rd stage
Fig 5. Planning stages
For any business going into collaboration, inner check is the first thing to consider. Inner check allows company A to analyse its performance up to now in the competitive market, the knowledge and skills, financial stability and status, federal government policy, advantage and risks associated with joint venture, and most essentially their objectives of going into collaboration.
To properly analyse these factors, S. W. O. T evaluation can be utilized the following :
What makes company A to stay strong in the market, backbone of its performance up to now and this is part of exactly what will attract somebody to get into joint venture with company A.
Where they have been lagging behind, and affecting the business performance, it could be new technology advancement, lacks of skills or experience personnel, insufficient training, breaking into new market and so many more.
Opportunities is usually to how strong company A is where it operates, reliability, huge network of customers, federal government connection, fast producing market, regional growth, license, market growth and so many more.
The treats can be administration policy, competition, Intellectual property right, fakes or scams copies etc
Table 1. S. W. O. T analyses of Company A
After the S. W. O. T examination of company A, having plainly analysed the needs and the goals of the business, then a decision can then be produced on types of strategy that will be best suited for these people, either growing internally to combat the dangers and weaknesses analysed while making best out of their opportunities and strength, or by sourcing for a potential partner that they both have common targets, and make sure the SWOT analyses of the two companies complement each other. The business A's decision can be to grow internally or even to seek a potential partner of product or job relatedness.
Fig 6. (Source : Category Module) Progress of Company A
At this stage, company A should be free from the strategy suitable for them, and assume that collaboration is the foremost. Then which kind of collaboration and using what type of spouse. How exactly to maximise the benefit of collaborations and the way to mitigate the potential risks should also be mentioned.
Having went for collaboration (international joint venture), Initial assessment of the potential lovers is very essential at this stage before going into details or make any dedication to avoid some of the risks mounted on forming a joint venture, which is time and money wasting. By doing this, the following factors need to be considered :
Objectives : the goals of both companies should be common and complement each other.
Backgrounds : knowing about the companies background is important, knowing about their history, present and future purpose records.
Reputation : integrity of the company going into business with is important as people have a tendency to evaluate you by the business you keep. Check what people say about them in conditions of trust and reputation as well as the success of collaboration they have had before if there is any. There must be a clear sign that trust can be build inside the partnership.
Reliability : the business must be reliable to trade with.
Experience : also it should be inspected if they experienced any cooperation experience before, then that which was the outcome of computer, if it was a success or failure, Which kind of management team do they work?
Capital : they must be financially anchored and they don't have credit problems and free from debt.
Culture : the culture of the partners must be well read and understood. In international jv, cultural issues have to be taking care of as different ethnic background sees agreements various ways.
Structure ; also the composition where they operate must be known, also their mission, vision and prices must be evidently considered and check if the joint venture can work.
Performance : just how they perform on the market is also important, their level of performance in fulfilling their customers and suppliers also need to be considered. Their development performance is also important.
Product : the brand value should go with the other person.
These will be the characteristics to look for in a potential partner and these factors can be known by checking the websites of the partners, company periodicals, company information (quarterly, mid-year, or annual), journals, trade magazines, consultants, investment banks, collaboration track files, their suppliers and customers, ex- worker, newspapers and/or from the proposal sent from the potential mate.
The next level is the tactical planning and evaluation, it is one of the most important aspect to consider when selecting a partner, having gotten SWOT analyses of your business and all the firms involved.
Potential spouse A
Potential partner B
Table 2. S. W. O. T Analyses Comparison
These allows to compare the overall features of each of the potential lovers with company A's S. W. O. T research to check those complement the other person, and to make initial awareness of the company that may be collaborated with.
Key issues and objectives at this time need to be analysed from these S. W. O. T evaluation, and the type of options each company may offer in conditions of working mutually. If collaboration is the best, then which type can be the best for every single of the potential partners. Which partner share the normal strategy with company A. Also what can be the benefits and threat of forming jv with each company need to be carefully accessed.
Also at this stage, evaluation and original assessment of all suitable partner qualities is next. Then your aims must be obviously defined. it must be S. M. A. R. T.
R- reasonable and
T- time bound
The subsequent factors are must be carefully considered when choosing somebody :
In international jv, assistance between different partners of different civilizations can be considered a major challenge. IN THE US tends to be individualist and not group focused but unlike the Japanese that techniques collectivist and are group oriented. Aimin and Yadong, (2001), Said one partner may impose its ethnical beliefs and norms on the other spouse without even think about what the latter feature might be. And later said that Us citizens are not very good in learning from their lovers as Japanese does indeed, so many foreign companies uses jv as a simple way of gaining usage of America market and technology. And apart from the countrywide culture, company functional culture need to be well gain access to and make sure that there is compatibility in organisational and management techniques with potential mate.
Other factors that need to be considering about ethnic issues when forming a global joint projects are :
Language : the language of the deal must be well realized. Since it is international jv, it is most probably that the firms comes from an extremely different nationality, so there must be a common words agreed after to be used in meetings. In addition if it is difficult to communicate better in that language, a proficient interpreter that can certainly understand the two languages can be utilized and to become more clear and perfect, two interpreters can be used. The dialect must be well known with no hidden agenda.
Negotiation : negotiation in international joint venture require a very good management team in order to be successful. The durability and success of o joint venture depends upon the connections of its people. The team will need to have the knowledge, skills and attribute it takes to control joint venture or people who have modest experience but enthusiastic and focused on gain more knowledge. The management team consider the following factors ;
Possible results : it is vital to outline the particular possible outcome of company A and even the potential companions can be. Either it will be a win-lose or win-win strategy or combined.
Alternative to agreement : also Company A need to have at heart what could possibly be the best option to what they have decided on, and also what could possibly be the best substitute for the actual partners as well. Then Company A should find an innovative ways to fortify their own and weakens their partners alternatives.
Contract termination : there has to be a clear arrangement on how to terminate the deal and the price at which any of the companies can breach the offer must be place and estimated for every company.
Records keeping : proper record is vital in international joint venture and by the end of every conference, they have to check what they have already decided on and what's still available to be discussed.
Build trust : the team must be very wide open, ask many questions for clearness, show esteem and showcase complementary need and interest.
Resources : a firm going into collaboration might not have the full resources require open to meet up with the demand and may need to tap resources from the joint venture partner. Resources can be real human (people), skills and training, technology, recycleables, manufacturing facilities etc. It must be ensured that the there will be option of full resources.
The relationship should be checked if it's politically accepted in each country and politics risks is highly recommended.
It is possible for the international jv to be damaged by the political events or politics instability in a host country. Also when there's a change in politics relationship between the two countries, it may likewise have an implication on the joint venture. The system of federal of the coordinator country, political stableness, laws and regulations, lifetime of other regulating bodies must be studied into consideration.
In order to plan ahead of any unforeseen political risk, an insurance policy have to be done and there has to be an contract on financial and functioning policies.
This is another critical facet of joint venture, it is vital in choosing a jv partner. There has to be negotiation and the included parties should decided on the financial requirements.
Financial status or position of all parties involved, arrears etc. should be checked
Partners market reliability : the market credibility of all potential partners should be considered
Partnership records : their financial performance in the previous partnership they had before.
Capital contribution : the percentage of capital contribution of each spouse should be obviously stated
Raising capital : in the event there will be a need to improve capital, this is overdraft, brief or long loan, federal government options etc. likely source must be outlined
Working capital : the administrative centre needed while working must be arranged upon
Shareholding : the ownership right of every company should be mentioned and clear
Financial management structure
Transaction risk : to avoid deal risk scheduled to unstable foreign exchange market, trade in home money or open overseas bank-account in the country where the partner originates from. E. g if companies from US and Uk form a relationship, there can be a a merchant account in US Dollars and another in Pounds Sterling to perform the task.
Taxation (transfer and export) :different countries with different tax policy, it is vital to go over the ratio of taxation in the country, the import and export rate
Board of directors : the board of directors should be decided.
Chairman : the chairman of the jv must be decided
Governance : the guideline of the countries to govern the joint venture
Role meaning : each get together role must be stated clearly
Profit show : the percentage of sharing profit between the functions must also be agreed upon.
Inflation : possible solution in case of inflation in any of the countries must be studied into account.
Resources availability : resource supply in terms of possessions, equipment, lease, intellectual property right must be well designed.
In joint venture company, legal arrangement is essential which is by person to person, gentlemen's arrangement, memorandum of understanding (MOU), in depth specification, evergreen, full agreements and so many more (class component).
In international jv, the next issues must be considered
Governing rules : regulations of the country to govern the agreement must be agreed upon.
Payment method : there has to be an arrangement on the type of repayment method accepted.
IPR : the right of every partner in terms of Intellectual Property Right must be mentioned. Patent right, copyright, trademarks etc must be looked at.
Termination : it ought to be stated under which condition can any partner terminate the agreement. Common situations that terminates contracts are
When the agreement expires
Change of goal of one of the partners
Breach of agreement by any of the parties
Financial or legal concern.
Responsibilities : what is expected from each party have to be understood
Financial right : they need to know their financial right.
Veto power : there should not be somebody enforcing electric power on the other
Communication : the way in which communication will be transferred from location to place must be attended to.
Managerial right : the particular level in which each company will operate in terms of management must be stated.
Capital : what each spouse will contribute and what they'll escape it in conditions of profit, product etc
Transfer of talk about : there should be a mutual agreement on the share copy, normally the people getting into a joint venture is not expected to transfer its share to alternative party with no consent of its joint venture partner.
Agreement : the management team must be sure that there surely is a proof of agreement between the partners.
Language : the vocabulary of the agreement must be plain and well realized by the jv companies.
Clear meanings and Common Aims : select a spouse that brings no hidden plan when negotiating with them, the goals must complements one another and there has to be an data that the get-togethers need one another, the language of the contract must be well grasped.
Strategy clearness and compatibility : the strategy of company A and the potential mate must be clear, well known and appropriate for each other.
Financial strength : it is recommended to spouse with a firm that has a very strong financial bottom as it was describe in this module.
Mutual benefit : win-win frame of mind and strategy is the well suited for the joint venture partner there has to be a low threat of either of the companions becoming a rival.
Previous track files : it isn't advisable to go into jv with a company that has a poor background in conditions of relationship, financial or customer's satisfaction.
Culture compatibility : as different companies from different countries works on different culture, there must be a clear knowledge of the potential partner culture in compatible the your
Compatibility of CEO's and Mature managers
Market vitality : how strong the potential mate are in the market, customers satisfaction, suppliers relationship
Overseas experience : the knowledge they have got in conducting business outside their father or mother country, how it was supervised and the success reviews they experienced in the past.
Product relatedness : the products of the joint venture companies must complement each other, there has to be product relatedness.
Proper match : there has to be proper match in conditions of objectives, power, weakness, opportunities, weakness, culture, financial potential, product relatedness, strategy and so forth. There must not be gaps left out or overlook.
COMPANY A POTENTIAL MATE IJV
Fig 7. Proper match
Trust : to
Mutual profit : when there is a clear indication that you and your partner will benefit from the partnership, this bring in more commitment from the jv partners being that they are working towards their set goals
Cooperation not competition : there has to be proper cooperation between the joint projects companies included and do not require should turn to become a competitor
Non legalistic approach to the relationship : there should not be legalist approach to the relationship, legal professionals should only be utilized when in need of advice.
Win-win methodology : there should not be any selfish interest from the jv companies, win-win frame of mind and approach should be the ideal.
Profit : joint venture is successful when the each partner make profit and this will increase their financial strength
Performance : when things are going just how it was prepared and agreed, then performance of the joint venture is steady and it makes it simpler to achieve the set in place objectives
Market gain access to : when jv companies have the ability to break into the marketplace they aimed and they're making impact in the market.
Cost savings : forming jv means sharing cost of procedure, so a successful joint venture must provide as an avenue to save cost of development.
Achieved Aims : when the initial objectives of going into joint venture of the companies are met. This is a genuine success
Mutual arrangement : when there's a mutual arrangement between jv companies then it could be said to be successful
Improved competitive performance : some companies go into joint endeavors because of tournaments from other companies of same and similar development. In the event the competitive position of the jv company is improved upon, then it is prosperous.