Hierarchies, Incentives and Firm Structures of SynChem and Henlin Biotech - Essay Example

Hierarchies, Incentives and Firm Structure Question C 0 Introduction Developments carried out in the bio-tech or high-tech fields in the production of new products or services may perpetually involve the combination of a highly specialized set of skills or techniques from different fields. This has helped in explaining so many joint research or development ventures have taken place in the bio-tech and high-tech industries in the recent past. Experts in the field of business have defined joint ventures as being a form of enterprise that is created between two or more individuals in order to make profits and attain some limited purpose. They suggest that it contains the majority of elements that a partnership has only that it defines the period that it will end. However, joint ventures have been said to have their own predicaments. This paper describes the joint venture of SynChem and Henlin Biotech in utilizing their power in chemical research in technologically upgrading the chemical industry in China. This happened after SynChem had submitted their first application for a patent after discovering the linker technology anti-body drug conjugate (ADC) (Cheng, p.76). The paper additionally describes the benefits and/or problems that all of one of the participants in the joint venture. Finally, it discusses how the joint venture could be set up in such a way so that it still produces the potential benefits but avoids some of the pitfalls inherent in such projects. 2.0 Benefits and Pitfalls The chairman, president and other esteemed guests from Henlin Biotech visited the offices of SynChem with an intention of negotiating a joint venture with the company on upgrading the chemical industry in China. These visitors said that by combining their capabilities in research, both companies would greatly benefit in modernizing or upgrading their technologies. There are numerous benefits or pitfalls that such a joint venture may encounter during the course of executing business. The companies in the joint venture may benefit by making local contacts with people who have a greater understanding of the problems that technology is having within the Chinese chemical industry (Ekvall & Evan, p.90). These local contacts may help the companies in building closer relationships with other players in the industry who may bring in additional information and resources for the benefit of the joint venture. Both of these parties that are involved in the joint venture may in turn gain experience on the matters affecting the industry in addition to becoming more familiar the rules or practices used within the Chinese chemical industry (Bouchikhi & Kimberly, p.112). The joint venture that SynChem and Henlin Biotech are into will greatly benefit both companies that have combined their talents along with resources for achieving their objectives (Cheng, p.88). This is mainly because the companies will be able to pool together their individual workforces, equipment, finances and expertise in overcoming any risks that they may encounter in the industry. Both of the companies in the joint venture may also be able to obtain additional capital sources for facilitating their activities. Their joint venture will enable them to have stronger capital bases from which they can draw finances, additional cash or contributions on their capital from the shareholders within them (Hamilton & Zhang, p.165). The move would greatly enable them in preventing shortages of cash which may hamper their activities or the profitable completion of their projects. The companies within this joint venture which are SynChem and Henlin may additionally benefit through their increased bidding powers and bonding capacities. The companies combined efforts may assist them in attaining more powers when making bids in future projects. This is because the companies in the joint venture may have an extra ability of raising the resources and finances required to complete various projects (Campbell, p.87). Since SynChem is more experienced and better equipped to handle complex projects, Henlin Biotech may benefit from their connections with the local market and insights in making better bids in future projects within the country or abroad. SynChem has more information concerning the pricing strategies and various suppliers within the People’s Republic of China, a fact which may help Henlin Biotech in reducing the costs they would have incurred. The joint venture may also enable all the participating parties to benefit through reductions awarded in the charges of cost of items like insurance and other liabilities they may encounter. On the other hand, the companies in the joint venture may also encounter pitfalls that could hamper their activities and the attainment of their set objectives. The unclear allocation of responsibilities after the agreement has been entered by both companies may affect their operations and eventually the successful completion of the project they have undertaken (Sanders, p.72). The companies should clearly define who is responsible for the creation of new entities, obtaining bonds and monitoring their daily operations. These measures will greatly help the companies in coordinating their resources and efforts properly for their benefit and the successful completion of their projects. In addition, the absence of a performance bond may affect their operations since one of the partners may be unable to complete their part of the bargain in the contract (Hunt, p.166). In case the joint venture is created as a partnership, one of the parties may end up bearing liability for any unpaid debts that they incur in implanting their projects. To avoid these instances, both companies should contribute to the repayment of liabilities owed to other institutions. One of the companies in the joint venture may suffer due to the costs that are charged to their projects in case a cost structure has not previously been agreed upon. An agreement reached on how costs may be shared would help in doing away with any disputes that may arise and hamper their activities (Puhan, p.173). Finally, the lack of considerations regarding which party should control the cash during the joint venture may put these parties in cash flow problems. C. How to Acquire benefits while avoiding pitfalls The joint venture could be set up in such a way so that it still produces the potential benefits but avoids some of the pitfalls inherent in such projects. This may be done by defining each partner’s responsibility, control level, their interests or liabilities when signing their initial agreements (Cheng, p.122). They should also agree on how to set the terms or conditions governing their capital contributions, the obligations and penalties for the defaulters in their agreement. The administration of the joint venture should also be clearly defined in order to clear the air concerning the provision of various vital services which may include accounting, management, and financing. D. Conclusion In conclusion, the pitfalls and benefits expected should be greatly considered before drafting an agreement to be followed by the parties in the joint venture. Works Cited Bouchikhi, Hamid & Kimberly, John Robert. The Soul of the Corporation: How to Manage the Identity of Your Company, 2008. London: Pearson Prentice Hall. Print. Campbell, Dennis, International Joint Ventures, 2009. New York: Kluwer Law International. Print. Cheng, Michael, Experience On Specific Problems-Joint Ventures Between Hong Kong Company And Company From The Government Of The People’s Republic Of China (Developing Country), 2008. New York: GRIN Verlag. Print. Ekvall, Lei Lei & Evan Smiley, Bankruptcy for Businesses: Benefits, Pitfalls and Alternatives, 2007. London: Entrepreneur Press. Print. Hamilton, Stewart & Zhang, Jinxuan, Doing Business with China: Avoiding the Pitfalls, 2008. New York: Palgrave Macmillan. Print. Hunt, Peter A., Structuring Mergers & Acquisitions: A Guide to Creating Shareholder Value, 2009. London: Aspen Publishers. Print. Puhan, Tatjana-Xenia, Balancing Exploration by Creating Organizational Think Tanks, 2008. New York: Springer. Print. Sanders, Michael I., Joint Ventures Involving Tax-Exempt Organizations, 2007. New York: John Wiley & Sons. Print. Read More