Category: Joint Venture

Introduction

A joint venture (JV) is a business partnership where two or more business partners agree to join together only for a period of time to work on a project. In this kind of venture, the partners agree on the amount of power sharing and divide the expenses and assets amongst the partners in the joint venture.

The business partners must agree and sign legal documents that are used as proof of their venture together and they agreed powers over the project.

A joint venture can be either equity-based or contractual. It may be on the long term in working on the project or on a short term basis for the realization of the projects objective. The underlying facts and characteristics are the major factors that determine the nature of any particular joint venture. In addition to that, the nature of the joint venture depends on the resources and wishes of the involved parties.

Thesis Statement

In reference to the given cases study, this paper will conduct a strategic analysis of the situation presented in the case study and thereby give recommendations.

Discussion

India is the twelfth largest economy at market exchange rates and the fourth largest in purchasing power. According to economic reforms, it is the second fastest growing large economy in the globe. Today the emerging markets in India have become the most exciting in the world. Industrial licensing requirements have been substantially reduced by policy reforms.

Joint venture is the most preferred corporate entity by companies in India and all around the world. The joint venture companies in India are broadly divided into two types which are; financial collaborations which involves the foreign collaborations that have taken place in India.

The other type of joint venture in India is Technical collaboration which basically involves the licensing of technology by the foreign collaborators based on the compensation. There being no separate laws for joint venture in India, operations in India are set up by foreign companies by entering into collaborations with Indian partners.

The joint venture between Eli Lilly Company and Ranbaxy Laboratories was one of the most common cases in India. Lilly supplied active ingredients to the pharmaceutical companies in India and so in 1992 Ranbaxy approached Lilly with a proposal of providing low-cost sources of getting the ingredients that were being supplied by Lilly.

On the other hand, Ranbaxy had risen to become the second largest exporter of pharmaceutical products in India. The first meeting of the two partners in the joint venture was held at Lillys corporate center in the 1990. The directors of the two exportation companies were present in the meeting (Celly 7).

It was at this meeting that Lilly decided on forming a joint venture. The main focus of the joint venture was to market Lillys drug in India. In the event that one of the partners required to get rid of some shares in the joint venture, the agreement provided for the transfer of shares. The other objective of the joint venture was in marketing the generics and the two partners entered into another agreement in regards to this.

The joint venture came into force in March 1993 and an American citizen of Indian, Puerto Rico, was appointed as the managing director of the joint venture. Rajiv Gulati was appointed as the director in charge of marketing and sales (Celly 8).

The joint venture began launching products and moved to an independent place. It also hired more than 200 employees. All this happened by the 1993 and within a year after that it began gaining the trust of doctors and other professionals in the pharmaceutical industry.

The joint venture was a huge success in India in that most the professionals in the pharmaceutical industry in India opted for the products that were delivered by the joint venture than others (Celly 8).

Relevant strategic imperative (s) driving the global Pharmaceutical industry

Integrated

The global pharmaceutical industry as we know it today came about through the forward integration of some of the organic chemical producing companies. The rapid growth of this industry has been as a result of demand from the entire world for a better health care. Drug discovery was a very expensive process. This meant that leading firms would have to spend more than 20% of their sales in research and development of the drugs.

Responsive

Patent process was relied upon by most countries although it had a negative factor. It was very difficult to prove the originality of the process when it came to the patent process. The governments put price controls on the products in the pharmaceutical industry which made it difficult for the pharmaceutical companies to sell their original products in the market to be able to get money for further research of these drugs.

There was also the problem of the generics and Unbranded drugs which became more common in the markets because they were cheaper than the original drugs and thus meant that consumers went for them. In addition to that, the production of generic and Unbranded drugs was not expensive because no research had to be carried in order to manufacture these drugs.

Learning

Expenditures in the pharmaceutical industry in developing countries such as India was not that high because most of these countries did not conduct research on their own and wholly relied on import of these products from countries that had the production of these pharmaceutical products.

This in turn prompted the government of India through the Ministry of Finance to move in and substitute the import of these pharmaceutical products with the export of the same.

The government started recruiting skilled labor and persuaded pharmaceutical companies to go into joint ventures with foreign companies to enable them to conduct research and development in the pharmaceutical industry. The foreign ownership in the pharmaceutical industry in India rose from 40% to 51% as a result.

Relevant organizational challenges faced by the JV in India

JVs Structure

Some of the challenges that the joint ventures faced in India include; lack of trust between the joint venture partners. When a joint venture is agreed upon by two different partners, for it to be able to achieve the objectives of the project there must be trust amongst the joint venture partners.

With the formation of joint ventures in India, the Indian companies lacked trust with their foreign counterparts in that they entered into joint ventures but did not trust the intentions of the foreign companies.

On the other hand, the foreign companies had a huge challenge of language communication with their Indian counterparts in that it was very hard for them to communicate appropriately and had a few misunderstandings during the time they were setting up the structure of the joint ventures.

There was also the lack of enough skilled human labor in India. The foreign companies had to import skilled labor from their countries to be able to train their Indian counterparts of the skills that are necessary.

JVs Processes

About 40% of the joint ventures that were approved by the government were abandoned by the investors. This was after a lot of time was spent on the projects and a lot of money was used in the projects.

Some of the cited reasons for the failures of these projected were included: some of the local partners backed out of the joint ventures hence making the contract null meaning that their foreign counterpart had to move back to their countries of origin. In addition to that, the projects did not gauge the market prospects properly hence leading to losses within the joint ventures.

On the other hand, some of the technology that was supplied by the Indian partners was not approved by their foreign counterparts because it did not reflect the right quality of standards according to the then market.

The main reason for the failures in the projects was because the Indian companies were not able to adjust themselves to the new marketing environment. Most of the Indian partners backed out of the projected and cited inability to cope with the price competition.

Other factors that led to the failures in the projects included: poor project management where the projects were managed very poorly leading to their failures. There was also the lack of enough skilled labor to work on the projects because most of the Indian partners had laborers that were not qualified enough according to their foreign counterparts.

There was also poor operations control of both parties in the joint ventures thereby leading to the failure of the projects. There was also a lack of commitment from one of the parties in the joint ventures. This in turn led to the failure of the projects that the joint ventures were working on.

JVs Culture

The Indian partners were not going into joint ventures again before and they did not believe in it so it was hard for their foreign counterparts to have to encourage them to join them into the joint ventures in that they had to spend a lot of time in trying to show them the advantages of the joint venture and their benefits.

The foreign companies also had a difficult time trying to source for companies that are willing to join them in a joint venture. The Indian partners did not believe in the culture of joint ventures and had a hard time trying to comprehend what the foreign companies were aiming at.

Most of the developed business had single ownership so this made it also difficult for the foreign companies to try and convince the Indians that the joint ventures would do better than the other businesses.

There was also the issue of the Indian partners not able to hold their end of the contract because they lacked the skilled labor and the equipment that was necessary for the projects and had a hard time. The Indian market also made it hard for the companies to sell their products because of the price issue. Most of the products were expensive and could only be bought by big corporation or the government.

Main managerial implications related to the JV and its future

Specific people that occupy specific positions

In joint ventures, the managers of the foreign companies and the managers of the local companies must be able to work together and strengthen their relationship in the joint ventures so as to able to achieve the specific objectives of the projects. The managers of the specific companies are tasked with the obligation of making sure that the relationship between the two companies remains intact.

They are to adopt a collaborative attitude. In addition to that, the managers are to acquire the right learning materials for their workers to keep them in the knowledge and must also be able to avoid opportunistic behaviours because this kind of behavior will only develop crisis between the joint venture partners thus limiting the potential of realizing the projects dreams and ambitions.

Individuals make decisions NOT the organization

The managers who are directly involved in the joint venture process should posses skills which include; trustworthy, knowledgeable and proficient so as to be able to make decisions on their own without having to call for long meetings so as to be able to make the decisions. By possessing these skills, the managers will be able to make informed decisions that will in turn translate into higher profits in the ventured projects.

The decisions must also promote quality aspirations for the project for it to be able to make high profits in turnover. The managers must also demonstrate collaborative behaviors so as to be able to make decisions together. The decisions they make must reflect the dreams and ambitions of the projects in question.

Concrete reality

Managers of the partners in the joint ventures should be held accountable for every decision that they make. The managers made the decision in regards to the project in question which were aimed at saving time and energy.

These decisions had to reflect the focus of the project and inspirations and were made in collaboration with the managers from the other partners in the joint ventures and this meant that if anything went wrong with the project, they were to be held accountable. The managers also had to make decisions with regard to the labor of the project which meant that they were in control of the number of workers in the project.

Negotiate

The managers had to negotiate with the other partners with regards to the project in that they were to know the needs of the organizations they represented.

This meant that the managers were tasked with the responsibility of having to meet the other managers and negotiate the strategies that were necessary for obtaining higher profits from the project in question. They negotiated with the other managers with regards to the labor and other cases that were related to the smooth running of the project.

Discuss

The managers were also tasked with having to discuss the matters that arose from within the joint ventures and had to deliberate on what solutions were necessary in the process. By doing this, the managers had to have the dreams and ambitions of the whole project so as to be able to know what will be beneficial for the project to be able to maximize the profit margin.

Communication

The managers had to be able to motivate their employees. Communication had to be frequent and was used to create the vision of the project. In addition to that it established a connection with leadership. The managers had to explain the new rules and had to support individual transition process.

They also had to share as much information as they could and never made false promises to the employees to maximize the profit margin of the project.

Work Cited

Celly, Nikhil. Eli Lilly in India: Rethinking the joint venture strategy. PDF file, 16 Sep. 2004. Web.

Introduction

There are a number of regulations that apply to the formation and operation of joint ventures in the United States economic market, which is taken to mean two separate parties entering into agreements than merger agreements so as to engage in economic activities. The Sherman Act of 1890 applies to the formation and operation, as well as issues relating to monopolization or attempts to monopolize markets. Joint ventures depict a type of business where parties have a single project to accomplish. A pre-merger notification is required for the formation of a Joint Venture, under the Hart-Scott-Rodino Antitrust Improvements Act, 1976. There is prohibition to having interlocking officers or directors under the section eight of the Clayton Act of 1914. The formation and operation of a joint venture is also dealt with by the Federal Trade Commission Act of 1914. Careful analysis is important since joint ventures may be used by companies to deprive others of access to inputs (Brodley, n.d.). There are various advantages that can be gained through joint ventures. The companies would enter into a new market, develop a new technology or product, or increase the productive capacity (Pitofsky, n.d.).

Main body

Some procedural advantages and protection of certain notified research and development joint ventures is provided in the National Cooperative Research Act of 1984. The US regulations govern collaborations between parties through the Antitrust Guidelines for Collaborations among competitors, while Merger Guidelines provide evaluation of high degree of integration among parties. Merger Guidelines come into play under certain circumstances. These include the fact that; the competition between collaborators in the relevant market has been eliminated by such collaboration if the integration enhances the efficiency, and if the participants in the integration are competitors. These guidelines will also be utilized if the specific and express terms do not terminate the collaboration within sufficiently limited period. Under certain conditions, antitrust analysis of joint ventures may be carried out through the Statement of Antitrust Enforcement Policy in Healthcare and the Antitrust Guidelines for the Licensing of Intellectual Property.

The regulation governs the basis of an analysis of type of collaboration and the rules to be applied in the analysis. The rule of reason may be applied by the authorities while analyzing the collaboration where participants seek to achieve precompetitive benefits through entering into an efficiency enhancing agreement. However, the authorities may be used to analyze the collaboration under the CC guidelines if the collaboration threatens competition or if there are no significant benefits that would warrant any further analysis. Thus, key components of business such as the nature of business agreement, the purpose of the business collaboration, whether competition has been hampered negatively, and whether the competitors have market power, may become under scrutiny. In order to determine whether harm has been caused by the collaboration, it is essential to analyze it in order to see the pro-competitive and anti-competitive measures, and the authority would challenge the collaboration if harm has been caused to competition.

In order to qualify for an analysis by the rule of reason, two factors will be fulfilled by the said Joint Venture. First, when the distributing, marketing, manufacture or development of some product is necessitated by the joint venture or that creation of a new product requires the joint venture. Secondly, when there is sharing of risks or pooling of resources by the parent organizations. The Federal Trade Commission (FTC) may regulate competition on its part by regulating unhealthy market agreements between competitors, such as those discouraging competition in the market and those promoting monopolization. It is the duty of the commission to promote competition in sectors where consumer impact is high such as in healthcare (FTC, 2010).

Conclusion

Various regulations may also be applicable according to the type of the joint ventures. In particular, Section 7 of the Clayton Act applies to mergers and acquisitions which involves partial mergers: i.e. the fully-integrated joint venture will deal with all aspects of line of business including marketing, sales among others. Those mergers established in order to carry out joint Research and Developments may be analyzed under the rule of reason because it is possible for the parent companies to separately develop new commodities, services and processes at a much faster pace, whereas increase in market power and decreased competition may result in the market, following these collaborations. The effective analysis of joint ventures aimed at R&D are analyzed effectively through the National Cooperative Research Act of 1984 which was also amended in 1993. The regulation is currently termed as the National Cooperative Research and Production Act (NCRPA). Other types of ventures include production ventures, network joint ventures and joint selling & buying ventures (Sakle, 2008).

References

Brodley, J. (n.d.). Antitrust and joint ventures, 95 Harv.L.REV.1521

FTC. (2010). Who we are. Web.

Pitofsky, R. (n.d.). Joint ventures under the Antitrust Laws: Some reflections on the significance of Penn-Olin, 82 Harv. L. Rev. 1007, 1016

Sakle, A. (2008). A study of joint ventures under competition laws in selected jurisdictions. Symbiosis Law School, Pune. Web.

Finland sits in the European Union that it joined in 1995 and is continually attracting the international market (US commercial Service 2005, p. 12). Geographically, Finland has a 900 miles border between it and Russia.

In addition to its location, it is strategically placed in the growing market that is contributed greatly by its proximity to Russia, Scandinavia and the Baltic States, which have a market size of close to 80 million consumers (“Doing Business” 2005, p. 12).

As compared to other countries, there is a misplaced conception that Finland is a member of the large Scandinavian region but in contrary; Finland has its own specific monetary mark with the Finnish mark in it.

To be the highly coveted market in the European region it has the most developed industrial economy and it places it as the leading competitor in the telecom market (US commercial Service 2005, p. 12).

Economic factors

The economic factors that affect investment of a business in a region could be inflation rate, exchange rates, monetary supply policies and licensing policies that affect investment of companies in the region (Pajunen 2006, p. 1). The affected investors will look at the performance of other related companies in the region and determine if they will be able to establish themselves in the market.

In relation to this, Finland has the highest mixed market. The reason as to why it has been a perfect target for business venture is as a result of the country having currently attracted the largest size of international market (Pajunen 2006, p. 1).

The international market currently makes a third of the country’s GDP where companies from European region makes 60% of the total investment in the land (Pajunen 2006, p. 1). The other important aspect about Finland is the fact their trade policies are controlled by the European Union, thus they are not continuously fluctuating and this helps in increasing market reliability.

Financial statistics show that Finland has a lowest inflation rate that is at 1.2% as at 2010. There is also the lowest rate of unemployment that was also reported to be at around 8.1% according to the 2010 reports on the economic performance of the country.

The other important aspect is the fact the country currently has a labor force of close to 3 million workers making it a suitable place for investing since there is a readily available labor (Pajunen 2006, p. 1).

The country is capable of spending within its means since it has a revenue income of close to 66.6 billion dollars and it spends close to 65.3 billion dollars making it the best country since they can be able to budget for their expenses (Rouvinen 2001, p. 350).

The surplus in their revenue makes it have a stable rate of taxation. It has the lowest lending rates and the exchange rates of the currency are stable due to the low rate of inflation (Pajunen 2006, p. 1).

Legal factors

When looking at the legal factors that affect trade investment in Finland, they vary depending on the type of investment that the organization intends to venture in (Legal Environment Factors Affecting Business 2011, p. 1). Most of the legal factors are set out by Finland as a country and supported by the European Union, which it is a signatory.

Some of the regulations are import tariffs. These are the taxes that are levied on goods at the point of entry to Finland (“Legal Environment” 2011, p. 1).

The revenue paid on the goods depends on the original value of goods that are being imported. In most cases the importation tax rates range from 0-17% which is considered rather a considerable amount that most companies and investors can work with in the field of importation.

The other factor is the trade barriers. Trade barriers are meant to control trade relationship between Finland and other European countries and other non-European countries (Legal Environment Factors Affecting Business 2011, p. 1). Finland is reported to have introduced a different turnover tax with the value added tax by June of 1994 (Legal Environment Factors Affecting Business 2011, p. 1).

The review of the taxation criteria has seen most of goods and other commodities that were not previously subjected to taxation are nowadays being taxed at a lower tax rate. The country has the basic VAT rate at a very considerable rate of 22% which was reviewed from the old turnover (Legal Environment Factors Affecting Business 2011, p. 1).

They have special taxes placed for food stuffs that are taxed at 17%. In a different case, there are other special taxes for goods that are meant for entertainment, medicines, books, performances and sporting events, museums and other institutions that are taxed at a fairly low rate of 8%making the cost of living to be fairly low and considerate (Legal Environment Factors Affecting Business 2011, p. 1).

Another legal requirement is the importation requirements and documentations. The country has put up regulations that require some goods to be accompanied by special documents to make sure that their quality and safety can be authenticated (Organization for Economic Co-operation and Development 1960, p. 1).

These mostly apply on consumable goods and other goods that have a direct consumption by the consumers.

Other legal dispensations are a temporally entry that allows a free entry of some goods but only for a short duration (Organization for Economic Co-operation and Development 1960, p. 1).

The other regulation is including special labeling and marking of goods for some products (Organization for Economic Co-operation and Development 1960, p. 1). The labeling shows the manufacturer and the chemical composition of some of the products; hence, in case of any further explanation they can be contacted.

Hofstede Framework for Cultural Issues in Finland

A number of theorists argue that culture is a civilization or the refinement of the mind and it results from factors such as refinement, education, art and the literature that is available for the society (Ailon 2008, p. 885).

According to Hofstede, he refers to culture as mind software; meaning that it is based on the mind and it dictates the way a group of people behave or conceptualize the world (Hofstede 2005, p. 214).

Culture is adopted but one is not born with it hence, it is not in the genes of the individuals. As stated earlier, culture is shared by people who have a similar social contact or rather are living in the same region (Ailon 2008, p. 885). Also, culture can be adopted according to their social class that individuals belong to.

According to Hofstede, it is important to distinguish culture from human nature and individual’s personality (Hofstede 2005, p. 214). While venturing into the Finnish market, it is important to understand that culture can manifest itself in different ways that includes values, rituals, heroes and symbols (Hofstede 2005, p. 214).

When venturing into a particular country, it is important to understand all cultural symbols that are used by the natives as well as understand their meaning (Higgs n.d, p.1). Understanding culture will help in coming up with less offensive symbols.

There are some words that are used by Finland natives that have a cultural history into them hence; carrying out such a research is important to the success of a newly venturing company into the country (Hofstede 2005, p. 214). In the case of heroes, the investing company should be sensitive to associate with the type of heroes that are recognized by the society that is targeted by the company (Higgs n.d, p.1).

Rituals are other components of culture; the companies that are coming into Finland should have done research to establish etiquettes and organizational cultures that are in line with the culture of the natives (Ailon 2008, p. 885).

What and/or if the Government Has Done to Promote Foreign Direct Investment (FDI)

The Finnish government has put in great effort in encouraging foreign direct investment. To attain this, the government has removed regulatory limitations that depend on the acquisition (US commercial Service 2005, p. 12).

There are no controls on the mergers and this has been the rules to make sure that the European market is highly infiltrated (Rouvinen 2001, p. 1). The other effort that the country has made is to ensure that there is proportional competition from privately owned corporations and the government owned organizations (US commercial Service 2005, p. 22).

However, there are regulations that require all foreign owners of companies venturing into the Finnish market to provide to the government for processing of taxes (Rouvinen 2001, p. 1).

In conclusion, the Finnish government has created the best conditions for starting business ventures. The economic stability acts as the barometer to tell how the country is ready for foreign investments.

References

Ailon G 2008, ‘Mirror, mirror on the wall: Culture’s Consequences in a value test of its own design’, The Academy of Management Review , vol. 33, no 4, pp. 885-904.

Higgs, M n.d, Overcoming the problems of cultural differences to establish success for international management teams. Web.

Hofstede, G 2005, Cultures and organizations: software of the mind, McGraw-Hill, New York, NY.

Legal Environment Factors Affecting Business 2011. Web.

Organization for Economic Co-operation and Development 1960, ‘regulatory reform in finland: Enhancing market openness through regulatory reform’, vol 2, pp. 34- 45.

Pajunen, A 2006, Tuloerot Suomessa vuosina 1966-2003. Web.

Rouvinen, P 2001, ‘Finland on top of the Competitiveness Game? The Finnish economic and society 4/2001’, ETLA and EVA , pp. 345-356.

US commercial Service 2005, ‘Doing Business In Finland: A Country Commercial for US companies’, pp. 2-30.

Alpes is a Mexican corporation owned by a family and deals in provision of animal health products and services. The firm was to enter into a joint venture with another firm, the Charles River Laboratories.

The CRL was to undertake the chance and exploit the opportunity of the joint venture in order to increase its profitability. However, before undertaking the venture, it was necessary for CRL to undertake a PESTEL analysis of the joint venture so that it can prepare itself regarding resultant business deals with Alpes.

Political Environment

The political environment involves evaluation of the political impacts on the economy and the friendliness of the political system in Mexico towards the business venture to be established by the agreement between CRL and Alpes.

The political environment in Mexico is very friendly to businesses as it has set policies in place to allow businesses to conduct their operations.

However, Mexico has been portrayed by the media as a country that is full of corruption and doing business in the country is not easy for the joint venture since the firm is bound to lose a lot before it increases its market share. For instance, the directors of Bausch recalled an earlier experience with a Mexican joint venture in which their company was defrauded by a Mexican Optics distributor.

Economic Environment

The economic environment is very important for the joint venture as it will determine the success of the joint venture in Mexico. To begin with, the business environment shows some positive signals to the joint venture as the demand for the eggs products sold by the joint venture was on the rise.

Initially, the cross border trade between two companies from different countries was allowed and the two firms are also allowed to engage in a joint venture. Mexico is doing well economically based on its economic growth figures, which is a positive indicator toward the growth of business for the joint venture.

Socio-Cultural Environment

Demographic figures of Mexico indicate that the country has a population of about 111,211,789 million people that are from different cultures within the country.

Given the country’s economic well being, the large population will provide a ready market for the egg products sold by the joint venture. Alpes will provide goodwill by selling the products of the joint venture in Mexico because it has already established itself with outlets in Mexico.

Technological Environment

Technologically, the joint venture needs to adopt the latest technology in the production of SPF eggs in order to adhere to legal requirements on environmental conservation.

Environmental Issues

Environmental issues are concerned with the conservation of the environment and reduction of global warming. Mexico is one of the countries that have signed a global treaty on reduction of global warming through reduction of emissions. Therefore, the joint venture should embrace technologies that reduce emissions.

Legal Environment

Legally, Mexico has weak legal systems in which the firms operating in the country are not under strict instructions to provide formal financial and other reports in any given financial period.

For instance, the Alpes family business rarely held board meetings annually, there was no transparency and the firm did not have any strategic plans or budgets yet it continues to operate. This is a legal concern for the joint venture since Alpes rarely undergoes public audit of its operations and undertaking the venture may be detrimental for CRL.

Conclusion

The PESTEL analysis has examined the political and economic condition among other conditions of Mexico under which the joint venture will be operating under.

It was revealed that the joint venture needs to be weary of Mexico’s legal systems since the Alpes has been operating without providing audit reports, plans and budgets. In addition, the country has been portrayed as very corrupt thereby raising questions of trust between the two parties.

Joint ventures enable a firm to make its products more available to consumers in new markets. As a result, a firm is able to use a convenient distribution format that provides goods to customers more effectively. Therefore customers obtain products promptly in different retail outlets; an approach that allows a firm to penetrate the foreign market easily.

A firm is able to satisfy the needs of its customers because it improves the quality of service it offers to consumers of its products. As a result, the firm gets more positive customer feedback because it consistently meets their needs (Hisrich, 2010, p. 29). A joint venture enables an international firm to utilise a pre-existing market structure to minimise risks associated with foreign.

A joint venture may make a foreign firm incur higher expenses to set up operations in a foreign country. Some countries have a lot of regulations that bar foreign firms from entering their markets to take advantage of available opportunities. An ineffective management structure is also one of the key problems a joint venture is likely to face. This slows down decision making processes in the joint venture because all parties have to agree before a specific decision is enforced.

Poor financial performance may also have a negative effect on a joint venture. Some local firms may use their favoured market position to make foreign firms pay more money to set up joint ventures. It is necessary for all business firms to assess all risks involved before agreeing to become part of a joint venture (Hisrich, 2010, p. 36). A joint venture offers business firms an opportunity to expand their operations and I believe that it is an effective way through which a firm can make an impact in foreign markets.

A joint venture between a design firm in the US and another partner in Germany has several benefits. The joint venture will enable the US firm to rely on the existing structure of the German firm to market its products. It also allows the US firm to overcome regulatory hurdles in the German market which comply with strict EU economic policies.

However, the firm may need to modify some its designs to ensure they comply with German specifications. The firm is likely to incur additional product development costs (Gaspar, 2011, p. 78). The ownership structure may also slow down decision making in the firm due to differences between managers from the two entities.

References

Gaspar, J. (2011). Introduction to global business: Understanding the international environment. Mason, OH: Cengage Learning.

Hisrich, R.D. (2010). International entrepreneurship: Starting, developing, and managing a global venture. London, UK: Sage Publications.

Introduction

According to Fischer (2003, p. 5), the process of globalization that has been taking place in the recent years is usually intricate and many-sided.

There are several economic and non-economic challenges that businesses have to deal with satisfactorily to ensure that their systems continue operating as expected in order to achieve their fiscal objectives.

The major aims of the endeavours in business and economics is to reduce poverty and promote economic growth; this can only be achieved by the organisation’s ability to adopt feasible business strategies and policy structures that will help to deal with challenges and threats that may arise due to the numerous integration procedures involved in the global economy.

Background Information

Many multinational companies expand their operations into foreign countries through establishing their operations in the foreign countries or engaging in trade (Eicher & Kang 2003, p. 1). Gaining entries into the foreign market is associated with the growth of these companies that expand into the global markets.

The company that intends to establish its presence in the foreign market has to strategically assess and select the most appropriate mode of entry that will help in acquiring success in their foreign operations. There are several options, which Starbucks can use to enter the Nigerian coffee market.

In connection to this, the company has to make a very important strategic decision on the most appropriate entry mode to enter the Nigerian market. Joint venture and licensing are the modes of foreign entries that this paper will analyze in details.

Specifically, the purpose of this treatise is to evaluate the strengths and weaknesses of joint venture over licensing as a mode of entry into foreign markets.

Foreign Market Entry Mode

Expanding operations into the international markets presents an opportunity for a company to navigate through a financial crisis. Such expansions into the new international markets help a company to diversify the risks that may be associated with the specific markets in which it operates.

In this aspect, the company can easily expand its market share globally and increase sales revenue, as well as the overall profitability of the company.

Some of the international expansion strategies that a company like Starbucks Coffee Company has executed have resulted in generation of higher sales and revenues in the recent years.

For example, the company has dominated the coffee market with a market share of 69.8% (Brown 2011, p. 8; Gates et al. n.d, p. 14; Starbucks Coffee: Company Profile 2012).

Licensing

Licensing is an international market entry mode in which a company legally contracts its trademarks, intellectual property rights, design, as well as scientific expertise to a foreign firm. In return, the company offers payments or royalties.

For this mode of market entry, the company must have a legally protected and a distinctive asset. Licensing is a viable mode of entry for Starbucks Coffee Company into the Nigerian Market since the company does not have to incur development costs (Zekiri & Angelova 2011, p. 17).

It also reduces the commitment of the resources and political pressure from the foreign country. This in turn cuts down on the import barriers that are normally imposed on foreign companies like tariffs and regulations – these do not apply to the licensee company (Roby 2011, p. 9).

However, licensing may not be the most appropriate method to gain entry since such access to the market is constrained by the contracts and agreements (Zekiri & Angelova 2011, p. 25). The other problem is that licensees may not meet the quality standards that Starbucks delivers.

There is also a possibility of licensee turning into competitors in future, as the licensee may imitate or steal the technology in form of design processes.

International market entry through licensing is, therefore, only appropriate to companies that deal with technological innovations that are dynamic in nature to avoid instances where the ex-licensees may imitate the technology and become a competitor to the licensor (Ramaswami & Agarwal 1992, p. 18).

Joint Venture Business

Joint venture business involves the planned business agreements where there exists an equal involvement between the resident business and the overseas player.

This equity can be in terms ratios or in terms of control. Entering the Nigerian coffee market through joint venture may be profitable in the short-term since the Starbucks Coffee Company will definitely establish a quick presence in the market (Roby 2011, p. 23).

The company may also be in a position to influence the local company’s resources and managerial capability towards the manufacturing, retailing, and distribution of its product. However, the company is likely to face challenges of control and coordination of decisions, policies, and implementation with the local company.

The management problems may arise between the host country managers and the company managers due to disparities in culture, managerial styles and motivation that drives the participation (Wild, Wild, & Han 2008, p. 271).

Conclusion

The business environment has become volatile and organizations operating within different industries are affected by the factors that affect the industry such as political, economic, social, and technological factors among others (Kercher 2006, p. 58).

In order to overcome these challenges and experience success, organizations have to select the most appropriate and effective international business entry modes that will help them overcome challenges of environmental factors.

References

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Wild, J., Wild, K., & Han, J. 2008, International Business: The Challenges of Globalization, Pearson Prentice Hall, Upper Saddle River, NJ.

Zekiri, J. & Angelova, B. 2011, ‘Factors that Influence Entry Mode Choice in Foreign Markets’, European Journal of Social Sciences, vol. 22. no. 4, pp. 1-31. Web.

There are many different business organizations as well as different modes of entry and all have got specific advantages and disadvantages. A joint venture is an example of a business model of entry which refers to a strategically planned partnership between either two, or more business entities.

The businesses agree to engage in a joint venture after establishing new business opportunities in which they agree to contribute the capital and eventually share losses and profits.

Apart from a joint venture, a business may opt for a wholly owned subsidiary which refers to a company that is fully owned by the parent company.

In that case, even though the company may still have some stock and bonds being traded publicly, its common stock is owned by its parent company and is not available for other companies and individuals to purchase (Carbaugh pp. 115).

Since there are specific advantages and disadvantages for each venture, this paper explores the same and singles out the best option between the wholly owned subsidiary and joint business venture.

As highlighted in the introductory part, every business venture contains some specific advantages and disadvantages. For instance, the main advantage of a joint business venture is tied to the issue of shared responsibility.

In that case, raising capital is much easier since both companies entering into a joint venture contribute equally. Also, in case of loss occurs, both companies share equally and therefore, one company does not shoulder the burden of running the acquired company alone.

However, there are still some disadvantages of the same — the size of the organization in a joint venture results in several disadvantages.

For instance, in most cases, it is difficult to control and make important business decisions based on the fact the two companies take part in management (Carbaugh pp. 117). Therefore, there are many conflicts in a joint venture that may interfere with business activities.

In a wholly owned subsidiary, the organization or parent company reaps the benefit of being in full control of the acquired business entity. Therefore, there is usually less conflict especially involved in making important business decisions which do not only make the process faster but also easier.

Nevertheless, the main disadvantage involves risks such that the parent company bears all the losses and the risks that may be incurred while running the new business entity.

Similarly, there is no shared responsibility of raising the initial capital unlike the case of a joint venture (Hill and Jones pp. 270)

Although the above-discussed entry modes have got specific advantages and disadvantages, a wholly owned subsidiary seems to be more superior while compared to the joint venture.

While planning to engage in a wholly owned subsidiary, the parent company is not required to participate in many preparation activities like it is the case with joint venture activities. Studies of Hill and Jones (pp. 270) affirm that a wholly owned venture does not require much preparation.

Apart from that, the investment gives a chance to the parent organization to execute the plan of keeping away competitors. There is no fear of competitors since more of often than not, in a joint venture, the two companies involved are usually competitors.

In conclusion, it is important to point out that there are merits and demerits of different modes of business entry. In this case, the main focus was between a joint venture and wholly owned subsidiary.

Although there are advantages of a joint business venture, a wholly owned subsidiary has proved to be more superior based on the initial entry plan which is aimed at keeping away any potential competitors in the chosen country.

Although there is an increased burden of financing the venture in a wholly owned subsidiary, the risks involved are incomparable with the expected benefits.

Works Cited

Carbaugh, Robert J. International Economics. Stamford : Cengage Learning, 2008.

Hill, Charles and Gareth Jones. Strategic Management Theory: An Integrated Approach. Stamford: Cengage Learning , 2009.

Joint ventures and strategic alliances permit corporations with matching abilities to make the best of their strengths (Glover, 2003). Both contracts are usually widespread in technology and real estate businesses. The contracts are very common with corporations wishing to enlarge their sales or operations into the international market. As such, a joint venture contract allows a corporation to establish and invest in a new business, which is mutually possessed by both parent companies (Glover, 2003). On the other hand, strategic alliance is an officially authorized contract binding involved corporations to share their technology, brand names, or other resources.

Concerning inclusiveness, joint venture contract allows two or more corporations to invest their money towards the establishment of a third and mutually owned corporation (Glover, 2003). Since a joint venture contract permits a right to sharing of resources, information, and finances among the involved parties, it has the ability to merge the finest facets of the parties without changing the mother companies. The company resulting from the agreement is a continuing unit that will be in commerce for itself.

However, the mother companies will own profits. In contrast, strategic alliance contracts are established when corporations desire to expand speedily into a new area of knowledge or have a right of entry to latest technology or markets (Glover, 2003). During such situations, the companies are faced with two alternatives. They either purchase a smaller corporation with the required assets or establish a tactical alliance with a different company that would gain similarly from the affiliation. Unlike joint venture, strategic alliance flexibility of relationship is limited. The contract has a narrow scope and function (Campbell & Netzer, 2009).

The two contracts have numerous advantages and disadvantages that should be evaluated before signing into the agreements. To decide between the two contracts, the involved companies must understand their long-term objectives. With respect to performance incentive, a joint venture contract is better than a strategic alliance contract (Campbell & Netzer, 2009). With a strategic alliance contract, the parties can enter and exit the agreement with ease.

In a joint venture, more time and effort is needed to initiate and terminate the contract. Due to this, the joint venture has higher chances of achieving its objectives. Similarly, a joint venture requires minimal attention from the involved companies because its leaders manage it independently. Therefore, a joint venture contract will work best for those who are not ready to dedicate their time and assets to the health and continuation of their tactical alliance (Campbell & Netzer, 2009).

Before entering into a strategic alliance contract, a company should evaluate a number of factors to identify an appropriate partner (Campbell & Netzer, 2009). Primarily, it should choose a company with a related management approaches. Secondly, it is imperative to assess the partner’s goods and services. A strategic alliance is likely to be successful if the companies’ operations match other than compete. Thirdly, the possible risks of the agreement should be factored. Therefore, the companies involved must collect as many facts about each other prior to entering a union. Similarly, when entering into a joint venture contract, a company should assess a number of factors. A company should carefully evaluate what the union will achieve, the period of the union, and if they will need privacy to undertake their negotiations (Campbell & Netzer, 2009).

References

Campbell, D., & Netzer, A. (2009). International joint ventures. Alphen aan den Rijn, The Netherlands: Kluwer Law International.

Glover, S. I. (2003). Partnerships, joint ventures & strategic alliances. New York, N.Y.: Law Press.

The next country for Zipcar’s expansion

Robin Chase and Antje Danielson started Zipcar Inc in 2000 following their knowledge about the car-sharing programs in Europe (Esswein par. 1). Notably, the decision to start the company was inspired by Chase’s family ownership of one car that her husband took to work, and her desire not to bear the cost of a second family. In particular, Zipcar started with two cars, one of them operating in Boston’s Beacon Hill neighborhood (Esswein par. 2). Currently, Zipcar operates in Canada, Austria, the US, the UK, and Spain.

Next, Zipcar should start operating in China. Zipcar will tap numerous opportunities in the Chinese market presented by its high population, economic growth, a large number of university and college students, young professionals, and environmental hazards in mega cities like Beijing. Notably, since the global financial meltdown, the economic growth of China has slowed down from double digit to single digit growth.

In particular, China’s gross domestic product (GDP) real growth rate has declined to 6.8 percent (2015) from 7.3 percent (2014) (Central Intelligence Agency [CIA] n.pag). The drop in the economic growth means that a significant number of Chinese consumers are unable to buy or maintain their cars. Mainly, Zipcar car-sharing program will provide such users with an opportunity of driving cars without incurring purchase and maintenance costs. Overall, the current economic situation in China compels Chinese consumers to appreciate Zipcar car-sharing model because of the inherent economic benefits.

Zipcar provides a car-sharing network in urban areas and university (and college) campuses, the UK, the US, Spain, Austria and Canada (PRNewswire Zipcar Expands in Sacramento par. 9). Similarly, a car-sharing network will benefit the company following the growing number of universities and urban migration. Notably, China has more than 2,409 colleges and universities (Bradsher par. 22). Currently, China produces 8 million graduates in a year from community colleges and universities. Notably, China is expected to produce 195 million university and community college graduates in the next decade (Bradsher par. 26).

Mainly, these Chinese statistics present an enormous opportunity to Zipcar in that college and university students are one of their prime targets due to their “low” economic status and busy schedules that require convenient transport means.

China has a vast infrastructure network linking principal cities and urban areas. Again, the Chinese government continues to expand and improve road infrastructure in the mega cities. Statistically, the road network in China covers more than 4,106,387 kilometers, with 3,453,890 kilometers paved and 652,497 kilometers unpaved (CIA n.pag). Notably, 84,946 kilometers in paved road network constitute expressways. As a result, China is positioned at number 3 in the world regarding the road network (CIA n.pag). In this regard, the presence of an extensive system of the road in China will benefit Zipcar through coverage of many areas and low maintenance costs of cars.

The current cases of traffic congestion and severe air pollution in China main cities like Beijing are compelling government to consider mitigation strategies such as raising parking fees and fuel costs (Zeng par. 1). Despite the presence of such problems, the ownership of cars is unlike to stop soon. However, increased parking fees and fuel costs will make Chinese consumers such as young professionals unable to maintain cars despite their demand.

Thus, a car-sharing scheme in China can reduce the demand for cars while meeting the personal mobility needs of increasing young professionals. According to Zeng, the car-sharing network in China is anticipated to grow approximately by 80% per year over the next five years (par. 2). As such, Zipcar should enter the China’s market to tap benefits from the growing industry.

Mode of entry for Zipcar

Zipcar can use to enter the Chinese market using numerous entry modes. Notably, Zipcar has managed to access the already established car-sharing network in Austria following the acquisition of CarSharing.at (Zipcar par. 3). However, in China, a joint venture is a more appropriate mode of entry. In particular, Zipcar should form a joint venture with BYD Auto. Mainly, Zipcar should possess the majority of the stake and assume the control of the enterprise. The choice of the joint venture is based on underlying government based obstacles to doing business in China, the competition, and the benefits associated with BYD Auto.

The Chinese government is a major player in the market in terms of controlling the activities of both domestic and foreign-owned firms. Notably, Chinese government uses favoritism towards local companies. On the other hand, it has a history of initiating obstacles to foreign-owned companies it considers unfavorable (Perlez par. 5). In this regard, Zipcar needs to maintain a good relationship with the Chinese government to have an easy time of doing business in the country. Mainly, a joint venture presents the best mode of entry, as Zipcar will enjoy not only a good relationship with the government but also favoritism directed towards BYD Auto.

Zipcar will enjoy strategic benefits through a joint venture with BYD Auto. For instance, the joint venture will enable the company to enter the Chinese market with popular and environmentally friendly cars. Notably, the use of environmentally friendly cars is congruent with Chinese government policies of reducing air pollution in main cities such as Beijing (Wong par. 1). As such, Zipcar will receive positive reviews from the Chinese government due to its objective of meeting transport needs and at the same time reducing traffic congestion and improving air quality. Again, Zipcar will enjoy lower vehicle acquisition costs since the company will not incur high import taxes associated with foreign automobile imports in China.

Although Chinese car-sharing industry is still on growth stage, there are already well-established competitors. One main competitor relates to the increasing car ownership. Suwei and Qiang note that “in 2011, about 55 in every 1,000 people owned a private vehicle, while only a negligible 0.27 persons in every 1,000 people in 1985” (40). Notably, the estimates show that privately owned cars in 2010 were 55 million, a number that is likely to increase to 140 million by 2020. Many individuals would like to own cars, but car-sharing model presents a better choice to young professionals, university and college students, and low-income earners. Mainly, this is because of inherent maintenance costs, parking fees, gas prices, and insurance costs associated with car ownership.

The public transport and eHi’s FastCar are other main competitors that Zipcar will face in China. Notably, eHi is a leading car-sharing service provider in China (PRNewswire eHi Car Services par. 1). Thus, a joint venture with BYD Auto will facilitate a quick and easier entry into Chinese market due to the company’s local popularity. In short, a joint venture is the only viable mode of entry into the Chinese market.

Works Cited

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A joint venture is a business undertaking consisting of two or more proprietors or organizations with an aim of sharing the cost of running the business and increasing profitability. Both local and international companies may want to benefit from joint ventures and they do this through either a formal agreement or a simple and informal mutual understanding. Joint ventures have become very popular over the recent years and most have shown great success in their operations (Johnson 2000).

According to Lynch (1989), joint ventures operate under similar concepts with alliances. The only distinction between the two is that alliances do not involve third parties and they are engaged for smaller projects than joint ventures.

Why international companies engage in joint ventures and alliances

Most international companies form joint ventures and alliances to save on expenses. They enable companies to implement strategies of sharing both costs and risks that are involved. Companies that aim at targeting international markets will find it easier to reach out to other nations more effectively when they have formed ventures and alliances than when they are accessing the markets individually. The international companies that have formed joint ventures and alliances are therefore able to gain access to broader global markets (Lane 1989).

They also form joint ventures in order to be able to advance their technological capabilities by engaging in research and development. According to Lickson (1994), most companies especially in the developed countries were normally reluctant to engage in research and development and the governments were not supportive either. However, with the recent existence of those countries with technologically advanced industries that are also fully supported by the government, most international companies have become willing to involve themselves in these countries through forming joint ventures with their companies.

Another major reason would be the fact that there have arisen various governmental and non-governmental agencies that encourage companies to form ventures and they also offer financial support to those companies that have come together. The governments of most countries have, for instance, involved themselves in the private business sector in order to support those firms that wish to form international joint ventures. This is unlike in the past years when the governments were reluctant to involve themselves in business development (Lickson 1994).

International companies engage in joint ventures also because they form a conducive environment for organizational learning and for sharing knowledge, experience, and skills with each other. According to Moeller (2000), companies intending to operate in the global markets will need to have the required knowledge of the market and this may greatly be enhanced through joint ventures because different companies have different levels of skills, knowledge, and experience in the business.

There is also the desire to enhance goodwill. A well-established and renowned company will more likely attract markets than that which is not. Major international companies that have been in the market for a relatively long period have created goodwill with their customers and other companies will create alliances and joint ventures to benefit from the goodwill. This way, they will be able to target larger markets and advance their activities (Lynch 1989).

Benefits of joint ventures and alliances

From the analysis above, it is clear that companies form joint ventures and alliances for a number of reasons. There are those companies that are well known as joint ventures and one major example is the Nokia Siemens Networks that is formed from two telecommunication companies, that is, Nokia Business Group and Siemens AG’s COM. The new company began its operations as a joint venture in 2007, having been formed in June 2006. It offers telecommunication solutions to its customers and it has seen a major development in its activities since it began its operations.

The Nokia Siemens Networks has been able to capture large markets through its activities. This is one major advantage of joint ventures and one of the major reasons why companies form them. Nokia Siemens Network has been able to access markets to over 150 countries all over the world. It has been able to enhance good relations with its customers who have gained its trust and through this, the company has gained a competitive advantage over a number of other smaller telecommunication companies.

Joint ventures also allow companies to gather enough capital and other facilities to benefit from economies of scale or make greater use of the available facilities and hence lower the production and operation costs (Lickson 1994). Nokia Siemens Network has come to be regarded as one of the largest makers of telecommunication equipment and this has enabled the company to greatly benefit from producing on a large scale. The variable costs of production are minimized while output is increased. This has been made possible by the accomplishment of the target set to combine revenue of over 15 billion euro.

They also enable companies to develop and incorporate technology (Lickson 1994). The companies that form ventures are able to improve technologically rather than those companies that are working independently. Nokia Siemens Network has, over the last two years been able to establish new products through the development of their technology. It has been able to establish broadband connectivity solutions that assist organizations to connect to the internet using telecommunication. It has also come up with new operations and enterprise software that enhance the operation of other businesses and hence diversify their activities through improved technology.

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