International Joint Venture - Motorola China Incorporated - Case Study Example

International Joint Venture (IJVs) Name Institution Date Executive Summary International Ventures (IJVs) are essential tools which MNCs use to enter foreign markets. Yet, according to research, IJVs are difficult to manage, and can fail due to various factors, such as cultural differences, weak economic compatibility and poor management. There are four types of firms as well as situations under which internalization occurs, which include the Early Starter, the Lonely International, the Late Starter, and the International among others. Organizations are interested in joining IJVs in order to have access to international markets, due to weak market position and to share the costs of business operations. One of the IJVs that have been successful is the Motorola Chain Incorporated due to factors, such as rapid economic growth, government incentive policies and managerial effort. However, some IJVs, such as Japanese-Western Joint venture partners have failed to achieve success in their joint venture arrangements due to reasons of cultural and economic incompatibility. In order for organizations to manage IJVs effectively they should understand and appreciate cultural differences between partners and be ready to act I accordance to the policies and regulations of the government of the day. The report concludes that MNCs must ensure they maintain good relationships with their partners in IJVs so to benefit from their business deal. Table of Contents Executive Summary 2 Table of Contents 3 1.0 Introduction 3 2.1 The Early Starter 5 2.2 The Lonely International 6 2.3 The Later Starter 6 2.4 The International among others 7 3.1 Reasons for the success of Motorola Chain Incorporated 8 3.1.0 Rapid economic growth 8 3.1.1 Government incentive policies 9 3.1.2 Managerial factors 9 4.1 Reasons for the failure of Japanese-Western Joint venture partners 11 4.1.0 Cultural differences 11 4.1.1 Economic factors 12 1.0 Introduction International Joint ventures (IJVs) entail partners in joint ventures from various nations interested in conducting the venture in either of the partner countries, or in multiple countries. They are considered as a tool through which multinational enterprises (MNCs) gain international expansion.1 International Joint Ventures enable many firms the right to use complementary capabilities and resources of each other which they require to maximize economies of scale. They also help firms introduce new products, services and technologies into new and existing markets faster, efficiently, reliably and cheaply than what they do as individual firms.2 Joint ventures have different partners that thrive to achieve a common purpose. The partners present certain status and position to the participants both in the eye of local and international business environment. The connections to the local business arena help IJVs to find the way in environments in which it would be hard for them to operate successfully without establishing these relationships, connections and social capital.3 Literature reveals interesting insights on IJVs, including factors contributing to successful and unsuccessful joint ventures. Nevertheless, in an increasing environment full of complexity and uncertainty, companies are more challenged to not only compete, but also cooperate across different aspects of business4. This report presents findings on how MNCs use IJVs as a tool for growth in the current turbulent times. 2.0 Circumstances under which MNEs internationalize using IJVs There are significant variations in circumstances in which MNEs internalise using IJVs. Therefore, the evolution and success of IJVs establishments through MNCs is highly context-specific. For instance, research conducted on German-Chinese Joint Ventures revealed that the success of the IJVs was attributed to JV Partner’s support, especially in dealing with authorities.5 MNCs may choose to link up skills and manufacturing resources with an international marketing capability as a means of entering or remaining in a foreign country is such a country has a law that does not allow foreign control but allows joint venture. Examples of countries with such laws are Mexico and China. MNCs may use IJVs as a source of supply for markets in third world country.6 However, cooperation as strategy of internalization can create problems of mismatch in what parties expect from the IJV and this is one of major reasons why joint venture divorce. Thus, internationalization through IJVs is an evolutionary process, where relationships are essential to winning foreign markets.7 The circumstance under which internalization takes place depends on the position of the firm in the market, degree of internalization for MNCs and the market internalization. There are four types of firms as well as situations under which internalization occurs; the Early Starter, the Lonely International, the Late Starter, and the International among others.8 2.1 The Early Starter These are MNCs firms that have limited relations with firms in foreign countries, such as firms in the production environment. Such firms have also limited knowledge concerning global business. In such situations a firm can use trading houses, local agents or other firms with experience, such as in the field of exporting so to be to commence and expand its international operations in foreign countries.9 Thus, a firm will take advantage of available positions in the market where other firms exist. Firms do not fully invest in foreign operations. In stead, firms engage in cooperative of indirect form of venturing to help expand internationally.10 2.2 The Lonely International This is a situation where the firm is more internationalized but the environment in which it operates in not. Since the firm has prior experience and knowledge in international operations, it can easily adjust to various markets globally and it can also join new nets across borders and increase its business activities. In this situation, the firm has increased its network can use it to expand. In addition, the firm is highly autonomous in the network in regard to expansion to new markets. Given the situation, the firm may act as a promoter for international expansion of other actors.11 The lonely international utilizes successfully different IJV instruments, such as international production and sales to perform its foreign operations. 2.3 The Later Starter These are firms that use their domestic network as a basis for starting to operate on an international scale. The driving force to joining foreign markets for such firms is the relationships they have build in the home market. Thus, the firm seeking to internalize its operations may be pulled out by complementary suppliers, for instance in big projects.12 The firms in this situation would use the market investments in the local market as driving force and can also be considered as assets to be utilized by the firm going international. Also, MNCs will use IJV instruments carefully, for particular situations alone. 2.4 The International among others In this case, the firm and the environment in which it operates are more internationalized. This implies that the firm only requires a steady change of its position in regard to internationalization so to achieve international growth and penetration. The firm may also use the intentional net it already established to cross over to other nets in other international markets.13 Therefore, MNCs have specific reasons why they form IJVs. Some companies join IJV because of the need to gain access to global markets in the same industry. Such firms use their weak market position as a driving force to joining IJVs14. In deed, the firm may in partnership with its competitor to help establish more, which in turn enables the firm to gain resources and capabilities. MNCs may also join IJVs due to the need to share the costs involved in developing goods or goods by combining knowledge, methods of production and provision of goods and services among others. These factors of cost-saving are normally valuable during the times when the economy is experiencing a downtown15. 3.0 A Case study on a successful IJV: Motorola China Incorporated Motorola Incorporated is ranked among one of the MNCs pioneers who have had success in China’s huge market from the early 1980s. Motorola China Incorporated opened its first branch office in Beijing in 1987. It became the major foreign investor in China with a single ownership including seven JVs across the country. The annual sales for the IJV was 23.6 billion of Chinese $RMB by the end of 1998. Motorola China Incorporated mainly concentrated on the semiconductor industry which has increased popularity in China. Later, in 2000, the joint venture invested into satellite communication equipment industry with a total of $2.5 billion.16 The growth of the investment has been exceptional and considered as a great success. 3.1 Reasons for the success of Motorola Chain Incorporated The success of the Motorola China Incorporated was due to external factors, such as rapid economic growth, government incentive policies, and favourable environment for investment. Also, it success was contributed by its managerial effort in different aspects.17 3.1.0 Rapid economic growth After China experienced economic reform in the early 1980s, its economy experienced a transition from the centralized planning to a more decentralized market economy. This led to an increase in linkage between China’s economy and the international economy. At the time, China’s economy was seen to have arrived at the point of “no return”. Foreign investors in form of IJVs, such as Motorola enter the China market.18 Chain in turn established stable economic policies, business legal system to boost economic prosperity. In addition, there was increase in actual income, consumer confidence, development of industrial infrastructure and general growth in the market and economy. Also these elements led to the success of Motorola China Incorporated.19 3.1.1 Government incentive policies Political factors, such as government stability, incentive policies, development of legal and economic systems, and political reform had a positive influence on the success of Motorola China Incorporated in China.20 These factors affected the decisions and operations undertaken by the joint venture business of Motorola China Incorporated. The IJV established good relationship with relevant government agencies and understood their relevant functions, which in one way or another helped them solve critical operational concerns. In addition, the IJV understood well the government’s structure of chain of command which helped them acquire important information to make informed decisions.21 3.1.2 Managerial factors This is one of the main factors that led to the success of Motorola China Incorporated as IJV in China. The first challenge Motorola had while entering China to do business was how to choose an appropriate Chinese business partner in the semiconductor industry within its preferred geographical area.22 However, it did it well and this is the reason why it demonstrated a strong managerial effort in various perspectives. First, Motorola China Incorporated used its managerial effort to promote essential strategic policies, such as recruitment of local talent, investment in manufacturing using the right technology, and increasing local part supplies.23 This was achieved due to full support from the local partner to the joint venture. Second, through Motorola China Incorporated’s managerial effort, the IJV re-direct its profits in China into the country’s rapidly growing high-tech industries. In the process, it shared both the problems and risks with the Chinese partners, promoting its sustainability in the business.24 Third, the IJV also build trust between both parties to the investment. They also developed trust and respect its management and local employees which resulted to good relationship among various stakeholders.25 Most importantly, the IJV ensured an effective compensation and benefit system which represented the principles of the Western management and the traditions of the ordinary Chinese. Fourth, the managerial effort by the IJV was directed toward to improve the design of their product in respect to the need of domestic market and making commitment to local employees and Chinese partners for their success.26 Lastly, the IJV maintained effective communication with both Chinese partners and government agencies. Thus, they could change their business policies where necessary based on a better understanding about the policies and regulations on the government, as well as local traditions and culture.27 4.0 A Case study on unsuccessful IJV: Japanese-Western Joint venture partners International Joint Ventures (IJVs) between Japanese and Western firms can be traced back in the 1960s. Since this period, MNCs from America and Europe have developed links with Japanese firms for joint ventures outside Japan, contrary to previous trend where most joint ventures with partners from Japan were based in Japan. However, complains have been raised concerning Japanese firms behaving unethically in IJV arrangements. As a result of drastic improvement in the economy of Japan since World War 11, its business has really been enclosed by myths in the West.28 Japanese firms are considered as either smarter than their partners in joint ventures or as purposely unethical and this has resulted to failures in Japanese-Western Joint Ventures. 4.1 Reasons for the failure of Japanese-Western Joint venture partners It is argued that both economic and cultural factors are likely to be responsible for failure in Japanese-Western Joint Ventures. Japanese firms are often not satisfied with the economic and cultural aspects of joint venture partners compared their partners. These can be explained in detail as follows.29 4.1.0 Cultural differences The IJVs between Japanese and Western firms do not succeed due to the fact that Western firms are very much culture-bound as well as insensitive to business practices by the Japanese firms. This is coupled with poor management practices.30 Ideally, the parties in IJVs should have firm specific advantages (FSAs) and these FSAs should complement each other in order for their joint ventures to be preferred. However, the first contributing factor to IJV failure in this case is not weak compatibility of FSAs, but the inability of Western firms to establish appropriate structure of governance, and to take advantage of using the FSAs for the Japanese partners.31 In addition, the failure of the IJVs is the lack of or inadequate compatibility of societal values. While Japanese employees are strive for collective achievement and being inconspicuous, American employees are more concerned with outstanding personal achievement. In addition, while “sincerity” to Japanese means not doing things that would make a person lose face; to an American it means lack of deceit or pretence.32 Basic values including honesty, truth and fairness are interpreted differently among the Japanese and Westerners. These differences between the two partners make joint ventures difficult to achieve. A part from the cultural differences between Japanese and Western firms, issues of understanding and adapting to the culture of the foreign country when a firm enters into a new market have also made joint ventures difficult. Unlike U.S. companies, many MNCs that enter into IJVs with Japanese-based firms have had some experience in international ventures.33 But the main problem of cultural differences exists between the Japanese and Western firms. More problems occur when joint ventures were established to enter the Japanese market. Firms in the Western did not use their resources to adequately investigate various joint venture partners before deciding the one enter into business with. As a result, various joint venture arrangements were hastily formed between incompatible partners as far as corporate culture concern.34 4.1.1 Economic factors Lack of a strong economic compatibility between Japanese and Western firms is identified to have led to failure in their joint ventures. Even if the firms had complementary FSAs their joint venture arrangements could not be successful without economic compatibility. The Japanese feel superior to other races in other races and more insecure about their future. Lack of natural resources, usable land mass, as well as the inability to compel its will in the form of military during World War II appears to have affected Japanese psychologically.35 This created a feeling among the Japanese that their security for the future is founded solely through economic power. Japanese-Western Joint venture partners also failed because of transaction costs that resulted from bounded rationality and uncertainty. For example, either of the partners to the joint ventures could not realize during the time of negotiations how much they would contribute to the profitability of the joint venture, therefore would not demand adequate compensation.36 5.0 Recommendations on how organisations can successfully manage IJVs Several factors discussed in this report indicate that there is more that needs to be done by organizations to successfully manage IJVs on an international scene. For instance, the success of Motorola China Incorporated was due to the fact that factors, such as government policies and economic factors were favourable to their joint venture arrangements, and they managed them to their benefit. On the other hand, the IJVs between Japanese and Western firms experienced difficulties, such as lack of cultural and economic compatibility, which eventually led to their failure. Therefore, organizations can successfully manage IJVs by considering the following points. Joint venture firms should improve how to manage information concerning their partners. This requires firms to develop and maintain mutual understanding of partner’s cultural and economic practices and philosophies. Also, it requires advancing the perception of management towards a compressive understanding of the nature of corporate culture of their partners.37 International corporations should consider government stability, government policies, and political structure of the foreign nation as preconditions for their investment in them. Thus, while firms should behave positively towards these factors and prepare for excellent results, they should also prepare to deal with unexpected events through their contingency business plan.38 Organizations should understand the local traditions and culture by integrating cultures of joint venture partners into business policies and procedures. In addition, these policies and procedures should be safeguard by local legal systems.39 Organizations should develop a technical support network which is sustainable and comprehensive with adequate employee training, as well as a powerful corporate culture to make more contribution to IJVs success.40 6.0 Conclusion Conclusively, MNCs use IJVs to increase their operations on the international scene. However, in order perform well through joint ventures; MNCs must establish good relationships, connections and social cohesiveness among partners. The circumstances under which MNCs internationalize using IJVs depend on whether they are Early Starter, the Lonely International, the Later Starter, or the International among others and their motives are to access global markets and share operational costs. Factors that promote the success of IJVs include economic prosperity, government policies and management factors. On the other hand, the success of IJVs may be hindered by cultural differences and weak economic compatibility. In order to be successful in managing IJVs, organizations should manage information well about their partners, act appropriately towards government policies, and integrate local culture into their business operations, as well as develop a comprehensive employee training for all employees. Bibliography Beamish, P., ‘Multinational Joint Ventures in Developing Countries’, RLE International Business, Vol. 4, Routledge, 2012. Beamish, Paul, W and Lupton, Nathaniel, C., ‘Managing joint ventures, Academy of management perspectives, May 2009, p. 75-94. Brown, L. T, Rugman, A. M and Verbeke, A., ‘Japanese joint ventures with western multinationals: Synthesising the economic and cultural explanations of failure. Asia Pacific Journal of Management, no. 2, 1989, p. 225-242. Corrie, C. A, Beirne, M and Parsons, L. L. 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