International Joint venture Essay

world-wide conjunction Ventures (IJVs) atomic number 18 becoming progressively popular in the business organization world as they aid companies to draw strategic totallyiances. These strategic alliances allow companies to gain competitive advantage finished gate to a partners resources, including food food markets, technologies, capital and people. Inter case union Ventures atomic number 18 viewed as a practical vehicle for experience transfer, such as technology transfer, from multinational expertise to local companies, and such knowledge transfer can contrisolelye to the work improvement of local companies. deep down IJVs cardinal or more of the parties is located where the operations of the IJV go couch and also sham a local and abroad society. rudimentary Elements of an IJVContractual Agreement. IJVs argon established by express contracts that consist of one or more intellects involving cardinal or more individuals or organizations and that ar entered i nto for a specific business purpose.Specific Limited Purpose and Duration. IJVs argon formed for a specific business objective and can acquit a limited life span or be long-term. IJVs ar frequently established for a limited duration because (a) the complementary activities involve a limited amount of assets (b) the complementary assets wealthy person only a limited service life and/or (c) the complementary production activities impart be of only limited efficacy. sound extinct Property Interest. Each IJV instrumentalist contributes property, cash, or early(a) assets and organizational capital for the pursuit of a popular and specific business purpose. Thus, an IJV is not merely a contractual relationship, but preferably the contributions are made to a newlyly formed business enterprise, usually a corporation, limited liability comp each, or partnership. As such, the participants consume a vocalise property interest in the assets and subject librate of the IJV.Reasons fo r Forming a conjunction VentureThere are many motivations that read to the shaping of a JV. They includeRisk Sharing Risk communion is a common reason to form a JV, incidently, in super capital intensive industries and in industries where the high costs of product discipline equal a high likelihood of failure of any particular product.Economies of Scale If an industry has high fixed costs, a JV with a larger participation can provide the economies of scale necessary to make do globally and can be an effective way by which dickens companies can pool resources and achieve critical mass.Market Access For companies that deficiency a basic understanding of nodes and the relationship/infrastructure to distribute their products to customers, forming a JV with the right partner can provide instant access to established, efficient and effective distribution bring and receptive customer bases. This is substantial to a company because creating new distribution channels and ide ntifying new customer bases can be extremely exhausting, time consuming and expensive activities. geographical Constraints When on that point is an attractive business hazard in a foreign market, partnering with a local company is attractive to a foreign company because penetrating a foreign market can be difficult both because of a lack of experience in such market and local barriers to foreign-owned or foreign-controlled companies.Funding Constraints When a company is confronted with high up-front emergence costs, finding the right JVP can provide necessary financing and believability with third parties.BenefitsMany of the benefits associated with International joint Ventures are that they provide companies with the opportunity to obtain new capacity and expertise and they allow companies to enter into cerebrate business or new geographic markets or obtain new technological knowledge. Furthermore, International crossroads Ventures are in most cases vex a short life span, allowing companies to make short term commitments rather than long term commitments. Through International Joint Ventures, companies are given opportunities to increase profit margins, accelerate their revenue growth, produce new products, fan out to new domestic markets, gain pecuniary support, and share scientists or other professionals that have unique skills that lead benefit the companies. StructureInternational Joint Ventures are developed when two companies work together to meet a specific goal. For example, Company A and Company B first attempt by identifying and selecting an IJV partner. This figure out involves several steps such as market research, partner search, evaluating options, negotiations, business valuation, business planning, and due diligence. These steps are interpreted on by for each one company. There are also statutory procedures involved such as IJV agreement, ancillary agreements, and regulatory approvals. formerly this routine is complete, the IJV Company is formed and during this final procedure the steps taken are formation and focussing. chargeThere are two types of International Joint Ventures dominant parent and shared focusing. Within dominant parent IJVs, all projects are managed by one parent who decides on all the operational managers for the speculation. The board of directors, which is made up of executives from each parent, also plays a primeval role in managing the go by making all the direct and strategic decisions. A dominant parent enterprise is beneficial where an International Joint Venture parent is selected for reasons outside of managerial input.FinanceWhen two or more partners get together and form an International Joint Venture agreement, they must decide early on in regards to what the financial structure will entail as this will aid in management and control. Some of the steps include establishing the capital required to spring up the IJV, the impact of securing a strong strategic allianc e partner, and financial reporting. Once an arrangement is made, a tax-planned joint venture will be created which will aid in maximizing the after-tax returns.Factors affecting IJVEconomic Factors unworthy formation and planningProblems that arise in joint ventures are usually as a issuance of poor planning or the parties involved being too hasty to set up shop. For example, a marketing scheme whitethorn fail if a product was inappropriate for the joint venture or if the parties involved failed to appropriately asses the factors involved . Parties must pay circumspection to several analysis both of the environment and customers they hope to operate in. visitation to do this sets off a bad tone for the venture, creating future problems. unforeseen poor financial performanceOne of the fastest ways for a joint venture is financial divergences between parties. This usually happens when the financial performance is poorer than expected either due to poor sales, cost overruns or ot hers. Poor financial performance could also be as a result of poor planning by the parties before setting up a joint venture, failure to approach the market with sufficient management qualification and unanticipated changes in the market situation. A good solution to this is to tax financial situations thorough before and during very step of the joint venture.Management problemsOne of the biggest problems of joint ventures is the ineffective blending of managers who are not apply to working together of have entirely different ways of advance issues affecting the organization. It is a well-known fact that many joint ventures dumbfound apart due to misunderstanding over leadership strategies. For a successful joint venture, there has be understanding and compromise between parties, find and integration of the strengths of both sides to overcome the weaker points and make their alliance stronger. Inappropriate management structureIn a bid to have equal rights in the venture, the re could be a misfit of managers. As a result, there is a major slowdown of decision making processes. Daily operational decisions that are best made quickly for more efficiency of the business tends to be slowed down because there is now a committee that is in place to make sure both parties support every little decision. This could disturb from the bigger picture leading to major problems in the long run.Cultures FactorsWhen a joint venture is formed, it is literarily an attempt at blending two or more cultures in the hope of leveraging on the strength of each party. Lack of understanding of the cultures of the individual parties poses a huge problem if not address. A common problem in these multi-cultural enterprises is that the culture is not considered in their initial formation. It is usually assumed that the cultural issues will be addressed later when the new unit has been created. Usually, compromises are reached and certain cultural from the parties are kept on while othe rs are others are either out rightly discarded or modified.Pros and Cons for IJVThe joint venture is becoming a popular way for companies that outsource their operations to retain a theme of the ownership pie. The creation of a new legal entity during the launch of a joint venture comes with its share of ups and downs. On the plus sideJoint ventures enable companies to share technology and complementary IP assets for the production and voice communication of innovative goods and services. Joint ventures can be used to reduce governmental friction and improve local/national acceptability of the company.Joint ventures may provide specialist knowledge of local markets, entry to required channels of distribution, and access to supplies of raw materials, government contracts and local production facilities.In a growing number of countries, joint ventures with host governments have become more and more important. These may be formed directly with State-owned enterprises or directed to ward national champions. On the minus sideA major problem is that joint ventures are very difficult to integrate into a global dodging that involves substantial cross-border trading. In such circumstances, there are almost inescapably problems concerning inward and outward transfer pricing and the sourcing of exports, in particular, in party favour of wholly owned subsidiaries in other countries. Problems occur with regard to management structures and staffing of joint ventures. Many joint ventures fail because of a conflict in tax interests between the partners.Disputes & AgreementsDisputesWhen two or more partners agree on an International Joint Venture, there are possibilities for disputes to arise. Particularly in IJVs, there can be issues between the partners who are likely to want their ingleside countrys governing law and jurisdiction to apply to any disputes that may come up therefore, to avoid such a problem, a neutral governing law and jurisdiction is chosen in both(p renominal) cases. A popular dispute resolution technique used in IJVs is arbitration however, many times a court process is given priority as this system has more authority. Other dispute resolution strategies utilized are mediation and litigation. AgreementsEntering into an International Joint Venture agreement begins with the selection of partners and then generally this process continues to a Memorandum of Understanding or a Letter of Intent is sign by both parties. The Memorandum of Understanding is a document describing an agreement between parties. On the other hand, a Letter of Intent is a document outlining an agreement between the parties before the agreement is finalized.Examples of successful IJVSony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish tele communication theory company Ericsson to make mobile phones. The stated reason for this venture is to trustingness Sonys consumer electronics expertise with Ericss ons technological leadership in the communications sector. Both companies have stopped making their own mobile phones. zee Navigation Enterprises Inc. is an international provider of marine transportation services focusing on seaborne transportation of refined petroleum products. One of the vessels, that is to say the Omega Duke, is owned through a 50% controlled joint venture with Topley Corporation, a wholly owned subsidiary of Glencore International AG (Glencore).They have also formed an equal partnership joint venture company with Topley Corporation, namely Megacore Shipping Ltd.