International Joint Venture - Essay Example

? International Joint Venture College: Introduction The highly competitive global environment has propelled organizations to look for strategies that will help them to sustain their competitive advantage through international expansion. The International Joint Venture has been considered to be the best approach in international expansion (Briscoe & Schuler 2004; Ernst & Halevy 2004). A well clarified objective of purpose will place the International Joint Venture (IJV) in a powerful position. This will result to an efficient management structure that is characterized with accountability, responsibility, employees and organization structure modelling in the partner’s level. The complexity arise in fostering these given that the management will be forced to compromise on some aspects and this will make some companies in the IJV to feel that they have been treated unfairly or unequally. The success of collaborations lies on the planning process when defining the concept and strategies to be employed in clarifying objectives and the performance criteria through a logical and systematic manner. International Joint Venture constitute organizational entities that are legally and economically separate, which invest collectively financial and other resources in order to pursue certain objectives. The integration is usually caused by need to expand, uncertainty in the market and urgency in decision making. IJV are mostly formed by two parent firms, one in the local market and another in a foreign country with the aim of establishing an independent organization controlled by a separate set human resource policies and practices. The management should consolidate the corporate cultures of two parties through trust, effective sharing of information and transparency. International Joint Ventures management engages in policies and practices that address the HR issues on their daily HRM activities when managing people (Evans, Pucik and Barsoux 2002). It is the work of HRM to define how people are going to be managed and most of these issues are actually implemented since it offers a clear guideline in attaining the same. The Challenges Inherent in the day-to-day Management of a JVC Managing a Joint Venture presents the biggest challenge to the management of businesses today despite its popularity. Problems are majorly experienced in development, organization and management; these make the IJV to fail to achieve its projected goals. These challenges are a result of diverse objectives and motivations of the partner companies, making the art of balancing their operations an issue. Further, management will have to problems in planning and when trying to balance the mutual benefits for the partners. Inefficiency in the human resource management majorly contributes to failures of IJV (Faulkner and Geringer 2000; Desai, Foley and Hinles 2004). Additionally, political systems, economic state, legal system, difference in partners and conflicting contracts have an upper hand in determining the performance of management. The human resource issues are challenges faced by management of the IJV in its day-to-day activities and solution will be attained once an efficient human resource manager with expertise on international collaboration is employed. The politics also pose some challenge as they can come up with policies that may threaten the success of the collaboration. Management should make reasonable political judgment since political appraisal that is present in some is something to avoid. The two partners may enter into a merger with a view of eliminating duplication of resources and processes thus fostering greater efficiencies in management. Culture differences pose another challenge to IJV. For instance, collaboration between Pirelli and Dunlop failed in the 1980’s due to differences in the English and Italian cultures (Barkema, Bell, Shenkar & Vermeulen 1997). Strong Charter Establishment of a strong charter to aid in securing partners with the necessary attributes required to enhance success of the venture is the another challenge that management do face. This is in view of the fact that collaboration is determined by the SWOT analysis of the company that an organization want to partner with. Once an IJV has been established, the partner companies are supposed to reveal their strength and weaknesses including the once that are deemed confidential as this will help the management in managing the IJV effectively (Beamish & Kachra 2004). Conversely, most of the partners hold some information from their partners and this reduces transparency making management to have a hard time in reconciling the collaboration. This situation is mostly caused by companies that are not performing well in the market and opt to join collaboration in order to cover for their losses, benefit from the stability of other firms or to cut on operation costs. Management is mostly faced with challenge of planning and strategizing in a global market. Managing two different companies that have different values requires the management to adapt the practices employed in both companies and merging them strategically. Some situations may require employment of expatriates’ from the parent company to avoid any obstacle that may hinder improved performance of the collaboration. The global competition in the market interferes with the nature and structure of organizational management. Competition is caused by advances in technology, high speed communication, rise in the rate of change and shorter life cycle of products; thus the need for management to embrace new communication system that is involving (Matthews 1999). Financial and economic challenges stand in the way of management too. Going global means that IJV is exposed to different economic conditions, fluctuations in exchange rate, increased demand for funds, tariff barriers and global inflation. Management is however required to ensure that the venture triumph despite all these resulting to the need for efficiency. Competition and Co-operation The presence of a high degree of competition and cooperation creates much tension in the management of the IJV; however, the high degree of cooperation will enable the partners to learn from each other more amicably thus presenting opportunities for improvements. In contrast, where IJV is characterized by low levels of cooperation and competition, attention will be focused on the top management of both parties leading to lower results as the r will be motivations for success. To sum up, the dynamics between partners offers an imperative insight on the possible course of direction of the relationship as well as the overall performance of the partner companies this makes it to call for key operational strategy to be adopted. The venture enables businesses to have positive and sustainable competitive advantage in the market (Isabella 2002). Companies entering into IJV deals usually have a long commitment to each and this call for a higher sense of cooperation between partners with low competition to enhance successful alliances. Corporate Strategy Collaboration decisions should be made in a logical corporate strategy so as to enhance success of the IJV in the long run. Most of the ventures are done without careful decisions are being consolidated and the result is usually frustrating as most of the collaborations have paid dearly for their rush decisions. Analysis of Rover company is one of the situation where the management made a rush decision in entering into venture after it went bankrupt in 2005.The people and organizational dimensions interfere with the performance and operation of an IJV. This issue may lead to disruption of the team dynamics thus leading to slow progress in the organization and this limits the growth and profitability of the collaboration. To deal with this issue the management are supposed to ensure all the senior management of the venture are highly committed in facilitating cooperation (Raynor, Barnes and Bacchus 2009). Additionally, relying on the parent company for managerial direction will play a big role in ensuring that the best practices are embraced in management. Honda and Rover Analysis Analysis of the Honda and Rover Company’s collaborations helps in pointing out the issues that propel organizations to merge as well as go global. As Rover had enough capital, resources, market, it lacked most important innovation and maximization of its potential. This made it to approach Honda, a company with reputable reputation in the USA market. The idea was welcomed by Honda even though its philosophy was a go alone one due to the benefits it was to secure from the deal including capital to finance its new innovation and the European market. The success implementation of this venture is attributed to the benefits each company was going to derive from the collaboration, and the mutual benefit derived from the relationship of the two companies for 10 years refute the need for equity in the development of collaboration. The case study shows how financial and political factors affected the collaboration between Honda and Rover thus leading to collapse of the venture (Raynor & Bacchus 2010). After running out of cash, the management looked for other partners to avoid its collapse but when things got out of control, there was nothing more to save since the company operations was shut down. Companies which had shown interest in Rover Company struggled to take over management but the position in which the firm was made it hard for it to succeed in the market once more. Companies should view partnership as a tool for exploring on their innovation especially where the venture is geared to be long term and in so doing. To enhance effectiveness in management, the venture should consider; the goal, value chain, culture of partners, the reservation of prices and essential zones for possible agreement and negotiation agreement that offers the best alternatives should be factored in. This is due to the fact that the parent company has good management practices that has seen it grow to be successful. Furthermore, difference in corporate culture affects the credibility and legitimacy of the collaboration (Newburry & Zeira, 1997). Trust Issue Lack of trust impels partners to withhold information from each other leading to the development of poor communication, lack of commitment, hidden agendas, extreme cases of suspicious, unequal contribution of partners and misunderstandings. To counter this, the partners should `create confidence in each other by undertaking deep research before collaboration. This will help them to be ready to work together and thus trust will be created a move that will enhance sharing of confidential corporate information. Management of IJV presents the need for trust in building relationships (Petrovic & Kakabadse 2003). Trust will help to reduce the cost and effort that is placed on monitoring of the other partner to see to it that they comply with terms and condition of the venture. Long term relationships will be created and short term greed of some partners will be dealt with. Taking advantage of the other partner in entering into a foreign market which has strong government restrictions towards foreign investment is assuring. Why enter into an International Joint Venture Companies forms IJV to be able to share knowledge and learn. The need for sharing and transfer of knowledge is attributed to the ever increasing global competition as well as unabated advancements in technology as organizations tries to access valuable resources that cannot be produced internally due to time and cost constraints. Unique learning opportunities is created and acquiring of partner’s skills, different organizational structure and cultures all of which require the huge structure of an IJV in order to access. New ideas and processes of working have led to increase in the need to cooperate with other companies that will be able to complement the company’s goals and objectives (Tian 2007). The emerging economies in the world accords the parent company control over the partner company given that success will be realised once the knowledge employed in the parent company finds its way to the other party in production, human resource, operations and supply chain management. The dynamics in the economy and need to enjoy a sustained competitive advantage in the market has made several companies to look for partners who will help them in attaining their goal. Operating as a single company makes a company to be limited in various angles. First, many governments, especially in the developing economies, place it as a pre requisite for foreign companies to enter into joint venture with local countries for them to be able to operate in their country. This condition limits companies that intents to operate on their own, hence, to be able to gain entry to such markets, there is need for companies to expand international through joint ventures (Robson, Leonidou & Katslkeas 2002). Secondly, companies that have internalised ownership have taken considerable long time and more cost to maintain a competitive edge in the global market and in maintaining healthy levels of growth due to limited financing, technology, information, innovation and knowledge. Furthermore, IJV results to harnessed personnel, skills and knowledge qualities. Issues Affecting IJV Management Managing a divergent requirement of partners has posed several issues to the management of IJV. To handle, the partners should present clear picture of its strength and weaknesses as well as opportunities and threats. This will help in strategizing for the future of the venture since areas that need to be maximized and those that call for more attention are known. For a company to join another during collaboration, they must be having the driving force which most of the cases differ. One company may be interested in increasing its market coverage while another may be to acquire the technology and innovations employed by the other company. These diverse facilitators should be merged and clear directive be drawn to aid in achieving this goal. The goal oriented activities that influences collaboration, interpretation and dissemination within an organizational setting the relevant information accounts for control (Schuler & Tarique 2005). Trust and learning are considered the major boost to control as their presence makes the role of management easier. The parent company to exercise control The parent company should exercise more control over the partner company. Despite the challenges presented in exercising control over the partner(s), the IJV system and itself; clear guidelines should be formulated that is characterized by learning conditions. This form of control will enable the IJV to gain and retain efficiency, organizational large scale economies of scale, managerial efficiency, and protection of the company’s brand image and offer protection to the assets of shareholders. To curb the challenges that may befall control, parent companies adopt effective strategies in maintaining control. Reputation and brand image are usually the major focus when controlling as need to be improved as they determines whether the IJV will enjoy the competitive advantage or not (Narula and Duysters 2004). Control is facilitated by the cooperation between the two partners. Therefore, parent companies should seek means in which they will nurture cooperation rather than concentrating fully on controlling. Enhanced cooperation facilitates learning of areas that needs adjustments and improvement since effectual cooperation fosters trust. Efficiency in management of the IJV will be attained as the management will learn the major strategic areas, plan effectively and then implement the necessary strategies in controlling the whole venture. Reputation Reputation of the venture company is what will determine its rise or fall. Caution should be taken to earn the confidence of employees, customers and other stakeholders. Satisfied employees will work hard for the benefit of the company since they will be more motivated. Additionally, the IJV will be most preferred by many people in the market thus enabling the firm to attract the best, skilled, and experienced staff with the necessary expertise to propel the company to greater heights. Fostering an effective customer service that aims at enhancing satisfaction of customers as well as surpassing their expectations makes customers to be loyal. Loyal customers help in increasing the revenue of the company and in bringing more customers. In the long run, the profitability will increase making the firm to be more competitive in the market (Schuler 2001; Schuler, Jackson, Dowling & Welch 1991). Furthermore, as the number of customer increase the venture will be required to increase its production an aspect that increase its overall size and performance. Market Volatility vs. Output Collaboration has had several impacts on the sustenance of businesses in the market as well as their extinction. Market volatility brought about by changes in customers’ expectations, new entry of competitors in the market, dynamics in economic climate have posed great damage to many businesses. Some companies enter into IJV with the aim of expanding its market; this makes them to increase the output capacity anticipating that market size will increase upon collaborations. However, the volatility of the market makes the sales of the company to drop even after spending much of its resources in the production sector. The end result is that such companies enter into bankruptcy and eventual collapse. When General Motors was expanding its market in China, it engaged in an expensive expansion programme despite the dynamics that were observed in the economic market in earlier years. The General Motors Company entered into a joint venture with SAIC and Wuling companies with the aim of expanding its operations in China (Tian 2007; Todeva & Knoke 2005). In return, this saw the increase in the production sector as production increased from 445,000 units in 2004 and in 2007, the out was 992,000 units reflecting a great increase in the production expenses. This was threatened however, by the global inflation of 2008 as the company had invested much of its resources in the risk taking initiative of increased production. Though it survived at the end, the risk could have proved to be worse if the condition could have persisted. Furthermore, the parent company will enjoy the well established market network and technology embraced by the local company. This enhances performance as it makes companies to streamline their expenditure (Todeva & Knoke 2005). The issue of staff integration Employees are the most valuable asset of any organization that intents to have a sustainable competitive advantage in the global market. The issue of staff in the IJV focuses on the cultures, information sharing, ethical, environmental, compensation and benefits working hours, labour market and the overall organizational structure should be considered in formulating HR policies. The top management should have the final say in staffing as this will help in avoiding interference from the parent company and the recruitment should be based on qualification, ability to manage cultural differences and knowledge of country culture. When forming an IJV, the management should be able to understand a number of issues that they will be confronted with (Petrovic & Kakabadse 2003). Focus should be on building trust, control and conflict management even in attracting employees to the venture. Efficiencies and large economies of scale obtained from combination of operations, expertise of the existing management as well as advantages brought about by the emerging technologies in the industry. Consecutively, collaboration develops the business through external and internal processes. The internal processes deals with the overall performance and reputation of the business achieved through increased output of products and services, increase in customer satisfaction and improved profits. To be effective, companies should analyse their internal SWOT analysis so as to identify the partner who fits in bringing the expected results to the organization. In essence, the venture should enable the two parties to complement each other by cancelling the other party weaknesses and maximizing on their strengths. Collaboration should thus contribute to improvement in manufacturing, product improvement and general performance of the supply chain management through benchmarking. The process of benchmarking each other performance enabled Honda and Rover to have great improvements in the performance during the 1970’s to 1990’s when they were in a joint venture. The two companies enjoyed the improvements that were obtained from benchmarking even after the venture was wound down in 1994 following acquisition of Rover by BMW (Bacchus 2008). Contract negotiations Quality of IJV contract negotiations during the process of forming IJV ensures satisfaction in IJV formation, process performance and overall performance of the IJV has been catered for. Partners are called upon to effectively bargain processes and strategies during contract negotiations and this defines the impact that the contract negotiations posses to the venture (Arino & Reuer 2004). Contract negotiations are affected by personality differences, cultural similarities, skills and loyalty of partners. Negotiations should have a wider set range of objectives and when discussing issues, predetermined sequence and independency approach should be adopted. Setting of fixed objectives will result to problems later to management as they will not be able to offer competitive package especially when the limit is too low or high. For instance, setting of lower price for goods and services in a venture will make the consumers to view the IJV as aiming at dumping products in the market. On the other hand higher prices will make consumers to look for alternatives products that serve the same purpose but are affordable. In creating value, partners should factor in their contribution to the other party. The management is further faced by the challenge of contracting in the international market. This is caused by issues that arise during negotiating a contract in the foreign market given that each country is governed by different laws. Problems may arise where management are not conversant with the legal requirements of the partner country thus resulting to conflicts. Furthermore, the contract should be well understood by all parties involved as this will help in effecting the contract in the best way possible (Schuler & Tarique 2005). Conflicting objectives and tensions has resulted to tensions between foreign and local partners and this has led to adverse effect on the cost efficiencies of the venture leading to decline in the joint venture. This however should not be the case; parent companies should control the operations of the other party by investing in technology and innovation strategies. Lastly, licensing and restrictions in the local government for entry of foreign investors contributes to the increase in International Joint Venture. Most of the foreign markets are restrictive to foreign investment. This limits the parent company from maximizing the potentials in the foreign country. In such incidents, collaborations should be enhanced through merging with local companies through innovations; this will help them in acquiring Intellectual Property Rights such as copyrights and patents and later entering into a licensing agreement (Mudambi 2002). This will make the company to enter, operate and do business in foreign countries with ease since the legal and financial risks will be dealt with during the merging and licensing process. Formation of IJV IJV formation follows a number of stages in order to be effective and operational. The companies should be able to identify potential partners. The reasons for joining an IJV should be listed and planning on how the venture should be done early while taking into consideration differences in management and cultural styles between the partners (Loess & Yauas 2003). Planning increases the possibility of attaining the required results as issues pertaining to management, operation and culture difference will be addressed. The cultural qualities relating to the organization or the country of the host and parent countries will facilitate drafting of policies that merge the two cultures, and this deals with inefficiencies. The second stage is development of the IJV. Focus here is on the location of the IJV; it can be on the country of either partner or in third countries. Information should be gathered that relates on political forces, trade unions, regulators and membership to societies. The board directors will be made up of representatives from both companies and to augment on success knowledge sharing will be fostered. Thirdly is the implementation stage where the vision, mission, values, and strategy are involved, supported and encouraged through knowledge in structuring the IJV. A qualified top management should be trusted with controlling the organization without interference from the parent companies (Faulkner 1995). The HR policies and practices should be created at this stage and it should reflect on labour market, global integration needs, difference in cultures and structure of the IJV (Schuler & Tarique 2005). Lastly, it is the advancement stage where learning of each partner is done and measures employed to ensure longer relationship. Conclusion Management should employ strategic corporate policies in managing the venture in areas of human resource, supply chain, innovation, production and customer service. The management of IJV should recognize innovation as the major drive in growth of companies and their prosperity. Together with economic dynamics and globalization, technological change has favoured the growth of IJV’s. Despite the challenges facing the success of IJV, companies should engage in efficiency management system as this will help in combating all the challenges and enhance performance and productivity of the firm (Davies 2005). Furthermore, companies should use collaboration as stepping stones to innovation and creativity as this will aid in coming up with ideas that will make the companies to be the leader in the market and enjoy the advantages of large scale operations. For companies to be successful when they enter into collaborations, they should first have a clear understanding of the strategic objective of the relationship they intent to create before focussing on the risks and benefits to be obtained. Collaboration is geared at enhancing business growth. References Arino, A. & Reuer, J., 2004. Designing and Renegotiating Strategic Alliance Contracts. 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