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At any given time a business will need to decide where to go in terms of strategic direction and one of the ways is through entering joint ventures.
Companies expand their business activities and grow by extending beyond the limits of their current corporate entity. Since money is involved in a joint venture, it is necessary to have a strategic plan in place. In short, both parties must be committed to focusing on the future of the partnership, rather than just the immediate returns.
In order to achieve this success, honesty, integrity and communication within the joint venture are necessary. Its feasibility, besides its profitability, is assessed which will regulate it, by its strength or weakness factors. Joint ventures occur when two or more separate organisations for strategic purposes create an independent business entity and allocate ownership, operational responsibilities and financial risks and rewards to each member, while preserving their separate identity.
These companies may decide not to merge permanently, they may have come together to rectify a competitive weakness until they can achieve long term dominance in the partnership.
Technology
Think of it in terms of technology — if you are a business that needs to obtain technology or manufacturing capabilities, your best bet could be a joint venture. For instance, Intel formed a partnership with Hewlett-Packard to use HP’s capabilities in RISC technology in order to develop the successor to lntel’s Pentium microprocessor.
Often, it can be to reduce financial risk — for example, because the costs of developing a new large jet airliner were becoming too high for any one manufacturer, Boeing, Aerospatiale of France, British Aerospace and others planned a joint venture to design such a plane.
Conduct a thorough research
There is, in fact, a close relationship between one company’s prior experience and the influence of the other partner’s position relating to transparency, receptivity to ideas as well as intention (Hammel 1991). If you were deliberating on investing in India, it is worth considering the fact that India is a common law country with a written constitution, guaranteeing individual and property rights.
India appears to be well placed in terms of reaping benefits because it has relatively well developed financial sector, strong industrial base and critical mass of well-educated workers. A partner’s analytical skills and management knowledge are often embedded within the joint venture organisational structure to establish fundamental competitive resources.
International joint ventures are often established under the assumption that an injection of cash capital, advanced technology and management expertise from the foreign partner, combined with local knowledge and distribution channels provided by the local company will deliver success in the marketplace.
For instance, a foreign parent may focus on the establishment of a strategic position in China — banking on the low cost of sourcing and availability of cheap raw materials. The foreigner may face constrictions in China as its transitional economy is still at the stage of foreign investment improvement and the development of relevant institutional policies.
The partners must also establish agreements on maintaining those norms and social systems, organisational structures and domestic market integrity while adopting the technology and management structures. The trade-off is between acquisition of complementary expertise that each of the partners are willing to transfer and the ceding of power over decisions relating to critical resources. The worth of a partner’s knowledge and resource inputs can be measured by assessing the value of technological skill, management expertise and venturing experience brought by a partner.
Acquisition of new technology may require a partner to learn new conventions and this can be difficult if the new conventions clash with the existing codes.
Business expertise
In joint ventures, it is also important to acquire extensive experience in international marketing, finance and technology — this knowledge base will assist you in fully engaging in decision making.
I have seen companies that have made significant inputs in the knowledge of domestic marketing distribution and HRM areas that have eventually acquired significant influence over the partnership even though they initially had a minority equity investment.
Studies carried out indicate that in British-Chinese international joint ventures, the British contributed all the process technology and management systems to the venture.
Comparatively, the Chinese counterparts have a relatively low involvement in strategic decision-making within the operations but achieve relatively high influence scores on the use of profits.
So as you consider partnerships with different cultures, it is important to conduct thorough research on partner objectives, partners’ inputs and competencies. Partnering with another business can be complex. It takes time and effort to build the right relationship. Problems are likely to arise if:
l The objectives of the venture are not totally clear and communicated to everyone involved;
l The partners have different objectives for the joint venture;
l There is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners;
l Different cultures and management styles result in poor integration and co-operation; and
l The partners don’t provide sufficient leadership and support in the early stages
Success in a joint venture depends on thorough research and analysis of the aims and objectives. This should be followed up with effective communication of the business plan to everyone involved. Till next week, keep them rolling.
Shelter Hamandishe-Chieza is a Management Consultant. She holds over a decade of management experience and is in the final stages of a Management of Business Administration degree with a local university. She can be contacted at [email protected]
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