Selecting Right Partner In Forming International Joint Ventures Management Essay

Selecting Right Partner In Forming break throughside(a) Joint Ventures precaution EssayOver the then(prenominal)(prenominal) twenty years, there has been a surge of interest of companies coming together, many of which were reflected in the popular management press and the academic journals of corporate links creation cast of charactersed. Many organisation now uses strategic relationship rather than competition among themselves to grow their business. These ar formed for a variety of reasons, which include novel technology development, expansion to new domestic securities industry, reducing manuf defenduring approach, new crossing development, ability to increase profit margin, financial support and sharing of economics risk, overcome sancti cardinald and trade barriers and many more(prenominal). These are several(prenominal) of the reasons why quislingism sometimes called followering, alliances or union take chances among many terms are formed. Joint make is on e of the closely popular forms of strategic relationship and it utilises separate business entities akin cooperation, limited liability family or better halfship, this entity makes the multiform parties to limit the liabilities involved. In recent years global challenges has fostered many companies from many countries to go into international stick venture more stronger than in the past, manufacturing companies, oil and gas companies, construction companies, banking sectors, automobile companies and many more are forming the international joint ventures.ObjectivesAs fellow selection is considered to be very distinguished to sport a successful quislingismism, this module will be focusing on selecting the adjust partner in forming an international joint ventures. The answers will be focusing on the literature on how to select a reasoned and successful partner when forming a joint venture. Also the following factors will be considered in forming a successful collaborationT he main characteristics to look for in a good collaborative partner, selection criteria and the strategic, political and tactical implications.The factors thats determines the good partners match in collaboration.And what the ii companies going into collaboration go off do to create good partnership condition.Literature reviewintroductionAs it was started in the objectives in the previous chapter, this report will be discussing various factors that are requiremented to be highly considered in selecting a partner when forming international joint venture, but before going further to a lower place are the definitions of some general terms of collaboration.Some Basic DefinitionsCollaborationDifferent companies go into collaboration with opposite reasons, and the reason why many companies go into collaboration is to try and fetch competitive advantage, entering new market and many more. Collaboration accomplish bundled vision, achieve positive break throughcomes for the audien ce involved and it excessively build interdependent system to address issues and opportunities. It is a world in which almost anything, in principle, is possible since you are non limited by your deliver resources and expertise only but by tapping into resources and expertise of other(a)s. ( Huxham and Vangen, 2005). Members of the collaborations needs to be ready and willing to share their vision, mission, power, goals and resources to achieve success.Also Collaboration is the act of working together to create or produce something for mutual benefit. (Oxford Advanced Learner Dictionary, 2001).http//ayanthianandagoda.files. devisepress.com/2009/07/collaboration.jpg figure 1 collaborationSource http//ayanthianandagoda.files.wordpress.com/2009/07/collaboration.jpgJoint venturesThere are many different definition for joint ventures, as experts opinions differ signifi butt endtly.A joint venture is a strategic alliance formed by two or more parties usually in businesses, partner t ogether to share markets, assets, intellectual property, knowledge and profit. (Valerie, 2006).Stephen et al.(1993) consider joint venture as a form of collaboration. He later defined it as a distinct business entirely created and jointly owned by two or more heighten organisations.Robert L .Wallace ( 2004,) defined joint venture as the coming together of two or more mugwump businesses in which both of them get hold of furbish up purpose of achieving a specific outcome that might be difficult for each(prenominal) of them to achieve individually.http//www.internationaltrade police.org/images/partnership.jpgFig 2 joint venture. Source http//www.internationaltradelaw.org/images/partnership.jpgInternational joint venturesWhen joint ventures crosses across the b baffle, it becomes international joint ventures. International joint venture is defined as the joint ventures that involve firms coming together from different countries cooperating across national and cultural boundaries. ( Aimin and Yadong, 2001). At times, international joint ventures are formed by two companies in the same country but hardened in a country other than their parent countries. (Geringer and Hebert 1989).Though majority involve two parent firms, one from foreign and the second one a local club. Also it may involve partners with complex nationality and cultural background. For example, Xerox Shenzhen order formed from Xerox (china) and fuji Xerox (US- Nipponese joint venture in Japan.).International Joint VentureFig 3. International joint ventureSource http//t3.gstatic.com/images?q=tbnshC_GkI4UDgeCMhttp//farm4.static.flickr.com/3504/3841640658_367ae3ab0d.jpgMerger and AcquisitionThere is a big difference surrounded by merger and skill, they should non be mistaken to be the same. Merger is when two companies come together to form a new high society while acquisition is when one company purchase another company.Fig 4 merger and acquisitionsource class moduleMotives of collaborat ionAccording to Ian Hewitt (2005), A company should not just go into collaboration just because other companies does, in fact different companies go into collaboration for different reasons. Below are a couple of(prenominal) of the reasons why many companies doesIncreasing competitive pressure competitors or rivalries in the market is one of the major reasons that force some companies into joint venture.Sharing greet and risk one of the main reasons for joint venture is cost saving and risk sharing. It helps to achieve synergy through rationalizing of employment and other fixed cost, and it overly research and development parturiency like pharmaceutical, electronics, aero-engine, telecommunication and so on. Joint ventures are frequently used in capital intensive project like power stations or infrastructural projectsEntering new markets partnering with another company already established in a particular market also helps in entering new and emergence market effectively and i t also helps in marketing an existing harvest-festivals and service to new customers.Total-quality-management. Do more with less it brings virtually a quality management into business and help in achieving the companies objectives in less time.Access to new technology, technology know how and customers joint venture helps to gain access to and to learn from partners technology , experience and skills as there is a rapid change in technology advancement day by day. advance access to financial resources coming together of the two companies improves the financial resources.Expand customer base international joint venture also help to thrive customer base in by making use of partners capacity in different geographical area and both develop a gigantic network.Developing new products a company bath go into joint venture to provide new products or service to their current customers or new customer. Since it is joint venture, the companies kindle develop a new products to sell t o their customers.In this new wave of technology, you shagnot do it all yourself, you have to form alliances. Carlos Slim Helu.The Benefits and RisksHaving considered few of the reasons why companies go into collaboration, it may sound interesting that collaboration is everything but an extreme care need to be taken when choosing the collaboration partner. Collaboration is good (when the refine partner is selected) and it is bad (wrong partner). Before going into details of selection criteria in choosing a partner, below are the types, benefit and Risks associated with collaboration.BenefitsIncreased financial resources and constancy it allows the partners to contribute financially to the project in an appropriate ways to the joint operation and it increases the financial stability of the business.Improve buying power and economies of scale it gives cost advantages and better purchasing power to increase the volume of business.Expansion to new market forming joint ventures can help in capturing a new market. dowery R D, engineering, production costs joint venture helps when a company is trying to enter a new field of business, by forming joint venture with a company already established in the business, it makes it easier to enter into the market. Examples include research institute and national government level.Shorten lead time collaboration shorten lead times and it makes it possible to achieve more in less time.Riskson the loose(p) overall control or desire for control if it is not well managed, the stronger partner becomes a dominant and this can undermine the interest of the other partner and it may as yettually leads to termination.Cultural issue the partners must(prenominal)(prenominal)iness render each others goal very well by doing an intensive research. Competent group that can negotiate in with tidy sum of different culture should be assigned to manage.Foreign exchange risk in joint venture, high volatility in the foreign exchan ge market, the movements of Dollars, Yen, Pounds, Rupee, Franc and many more cannot be predicted, and even payable to this in the oil transaction, it is generally accepted in the western world to trade in US dollars. dialogue and translation problems multinational project can become more complex if there is communication problem, and it is even better to have a translator or even two translators.Loose identity individual company can lose their identity and they may end up in forming a new name and old customers verity may be lost, though if the partnership is well managed it will create new customer loyalty.Partners failure if the partner failed to deliver, this mat cause a safe consequence or termination to the contract while the objectives have not been meant.Types of collaborationThere are many ways in which collaboration can be formed, depending on the common objectives of the companies involved. Collaboration can be grouped into two namely those defining the structure of the relationship and those defining the technical or commercial purpose of the relationship. Below are few types of collaboration that can be formed.PurposeResearch Collaboration which is most effective in scientific research and high technology new products.Joint Design and Development involves two or more companies coming together to share the risk of growing a new product and this often leads to joint or parallel production.Joint Production when two companies agree to produce separate sub-assemblies of the final product and this can leads to joint venture company.Parallel Production when same and similar product is manufacture in two or more countries and one partner leads the development of manufacturing facilities.Licensing formal capital of New Hampshire between two companies where primary company allow to use it design or know-how, or to manufacture a product and it involves defrayment of royalty fees. It may be of two types namely licensing in and licensing out, or b oth .Franchising this involves third party to market proprietary products or service under the original suppliers brand name e.g. stores and supermarkets, fast food outlets, petrol stations, etc.StructureInformal and Gentlemans Agreements this can be word of mouth discernment usually between partners of common interest and trust is essential. It can be a starting point for formal arrangement.Strategic Alliances Michael and Srinivasa 1995) said it can be defined by simultaneously possessing the following three necessary characteristicsTwo or more firm that unite to pursue a set of goals already agreed uponPartner firms share the benefits of the alliance and control over the performance of the assigned taskBoth contributes on a continuous basis in one or more strategic areas, e.g technology and product.It has no legal form, it is a relationship formed between two or more companies that share (proprietary), participate in joint investments, and develop link and processes to improve their performance of their companies. (http//www.apics.org/.). It can lead to creation of joint venture company.Strategic partnership is a form of strategic alliance in which the partners are linked by a non-controlling level of shareholding, either bilateral or unilateral. (W.J.Bacchus 2005)Joint venture companies this is an independent business entity, it involves ownership, operating(a) responsibility and financial risk and reward.As it was started in the objectives in the previous chapter, this report will be focusing on joint venture companies.How to select a compatible PartnerCompanies that are more thorough and comparative in selecting international joint venture partners are more likely to be successful. When there is a need for joint venture, choosing the right partner is another important factor. Only few companies today believe they can achieve their goals and objectives on their own but by seeking partnership with another company to stay ahead in todays global economy , So due to this, there has been an high increase in the numbers of companies coming together around the globe .When a company is going into a joint venture, collaboration outline need to be established. Furthermore in this report, it should be noted that a company in question will be represented by Company A and other companies that are available to choose from will be represented by strength partner A,B,CThe company A plan and operational stages can be established as 1st stage 2nd stage 3rd stageFig 5. Planning stagesCompany strategic readyingFor any company going into collaboration, internal check is the first thing to consider. Internal check allows company A to analyse its performance so far in the competitive market, the knowledge and skills, financial stability and status, government policy, benefit and risks associated with joint venture, and most importantly their objectives of going into collaboration.To properly analyse these factors, S.W.O.T depth psychology can be u sed as follows SWOTAnalysisS- StrengthWhat makes company A to remain strong in the market, backbone of its performance so far and this is part of what will attract a partner to go into joint venture with company A.W- WeaknessesWhere they have been lagging behind, and affecting the company performance, it may be new technology innovation, lacks of skills or experience staff, inadequate training, breaking into new market and many more.O- OpportunitiesOpportunities can be to how strong company A is where it operates, reliability, wide network of customers, government connection, fast developing market, regional growth, license, market expansion and many more.T- ThreatsThe treats can be government policy, competitors, Intellectual property right, fakes or fraud copies etcTable 1. S.W.O.T analyses of Company AAfter the S.W.O.T analysis of company A, having clearly analysed the needs and the objectives of the company, then a decision can then be made on types of strategy that will be best suited for them, either growing internally to combat the threats and weaknesses analysed while making best out of their opportunities and strength ,or by sourcing for a potential partner that they both have common objectives, and make sure the SWOT analyses of the two companies backup each other. The company As decision can be to grow internally or to seek a potential partner of product or project relatedness.Fig 6. (Source Class Module) Growth of Company AAt this stage, company A should be clear of the strategy best suited for them, and to assume that collaboration is the best. wherefore what type of collaboration and with what type of partner. How to maximise the benefit of collaborations and how to mitigate the risks should also be noted. sign Assessments of the Potential PartnersHaving decided to go for collaboration (international joint venture), Initial assessment of the potential partners is very essential at this stage before going into details or make any commitment to avoid some of the risks attached to forming a joint venture, which is money and time wasting. In doing this, the following factors need to be considered Objectives the objectives of the two companies should be common and complement each other.Backgrounds well-read about the companies background is important, knowing about their past, present and future intention records.Reputation integrity of the company going into business with is important as people tend to judge you by the company you keep. Check what people say about them in terms of trust and reputation and also the success of collaboration they have had in the past if there is any. There should be a clear indication that trust can be build inside the relationship. reliability the company must be reliable to trade with.Experience also it should be checked if they have had any collaboration experience in the past, then what was the outcome of it, if it was a success or failure, What type of management team do they work?Ca pital they must be financially secured and they do not have credit problems and free from debt .Culture the culture of the potential partners must be well read and soundless. In international joint venture, cultural issues need to be winning care of as different cultural background sees contracts different ways.Structure also the structure in which they operate must be understood, also their mission, vision and values must be clearly considered and check if the joint venture can work.Performance the way they perform in the market is also important, their level of performance in satisfying their customers and suppliers also need to be considered. Their production performance is also important.Product the brand value should complement each other .These are the characteristics to look for in a potential partner and these factors can be known by checking the websites of the potential partners, company magazines, company reports (quarterly, mid-year, or annual), journals, trade pu blications, consultants, investment banks, collaboration track records, their suppliers and customers, ex- employee, newspapers and/or from the proposal sent from the potential partner.Tactical planningThe next stage is the tactical planning and analysis, it is one of the most important aspect to consider when selecting a partner, having gotten SWOT analyses of your company and all the companies involved.AnalysesCompany APotential partner APotential partner BS- strengthsW- weaknessesO- opportunitiesT- threatsTable 2. S.W.O.T Analyses ComparisonThese allows to compare the general features of each of the potential partners with company As S.W.O.T analysis to check which ones complement each other , and to make initial consideration of the company that can be collaborated with.Key issues and objectives at this stage need to be analysed from these S.W.O.T analysis, and the type of options each company can offer in terms of working together. If collaboration is the best, then what type c an be the best for each of the potential partners. Which partner share the common strategy with company A. Also what can be the benefits and risk of forming joint venture with each company need to be carefully accessed.Also at this stage, evaluation and initial assessment of most suitable partner attributes is next. Then the objectives must be clearly defined . it must be S.M.A.R.T.S- SpecificM- measurableA- achievableR- realistic andT- time boundThe following factors are must be carefully considered when selecting a partner Cultural issuesIn international joint venture, cooperation between different partners of different cultures can be a major challenge. In America tends to be individualist and not group oriented but unlike the Japanese that practices collectivist and are group oriented. Aimin and Yadong,(2001), Said one partner may impose its cultural values and norms on the other partner without even consider what the latter attribute might be. And later said that Americans are not very good in learning from their partners as Japanese does, so many foreign companies uses joint venture as an easy way of gaining access to America market and technology. And apart from the national culture, company operational culture need to be well access and make sure that there is compatibility in organisational and management practices with potential partner.Other factors that need to be taking into consideration about cultural issues when forming an international joint ventures are Language the language of the contract must be well understood. Since it is international joint venture, it is most likely that the companies comes from a very different nationality, so there must be a common language agreed upon to be used in meetings. Moreover if it is difficult to communicate better in that language, then a competent interpreter that can easily understand the two languages can be used and to be more clear and perfect, two interpreters can be used. The language must be well understood with no hidden agenda.negotiation negotiation in international joint venture require a very good management team in order to be successful. The strength and success of o joint venture depends on the interactions of its people. The team must have the experience, skills and attribute it takes to manage joint venture or people with buffer experience but motivated and committed to gain more knowledge. The management team consider the following factors Possible outcome it is essential to outline what the possible outcome of company A and even the potential partners can be. Either it will be a win-lose or win-win approach or mixed.Alternative to agreement also Company A need to have in mind what can be the best alternative to what they have already agreed on, and also what can be the best alternative for the potential partners as well. Then Company A should find a creative ways to strengthen their own and weakens their partners alternatives.Contract termination there must be a clear agreement on how to terminate the deal and the price at which any of the companies can breach the deal must be set and estimated for each company.Records keeping proper record is essential in international joint venture and at the end of every meeting, they need to check what they have already agreed on and what is still open to be discussed.Build trust the team must be very open, ask many questions for clarity, show respect and highlight complementary need and interest.Resources a company going into collaboration might not have the full resources require available to meet the demand and may need to tap resources from the joint venture partner. Resources can be human (people), skills and training, technology, untoughened materials, manufacturing facilities and so on. It must be ensured that the there will be availability of full resources.Political issuesThe partnership should be checked if it is politically accepted in each country and political risks should be cons idered.It is possible for the international joint venture to be affected by the political events or political asymmetry in a host country. Also when there is a change in political relationship between the two countries, it may also have an implication on the joint venture. The system of government of the host country, political stability, laws and regulations, existence of other governing bodies must be taken into account.In order to plan ahead of any unforeseen political risk, an insurance policy need to be done and there must be an agreement on financial and operating policies.Financial issuesThis is another critical aspect of joint venture, it is very important in choosing a joint venture partner. There must be negotiation and the involved parties should agreed on the financial requirements.Financial status or position of all parties involved, debt etc. should be checkedPartners market credibility the market credibility of all the potential partners should be consideredPartners hip records their financial performance in the previous partnership they had in the past.Capital section the percentage of capital contribution of each partner should be clearly tellRaising capital in case there will be a need to raise capital, this can be overdraft, short or long loan, government sources etc. likely source must be outlinedWorking capital the capital needed while working must be agreed uponShareholding the ownership right of each company should be state and clearFinancial management structureTransaction risk to avoid transaction risk due to unstable foreign exchange market, trade in home currency or open foreign bank account in the country where the partner comes from. E.g if companies from US and Uk form a partnership, there can be a an account in US Dollars and another in Pounds Sterling to run the project.Taxation (import and export) different countries with different tax policy, it is very important to discuss the percentage of taxation in the country, the import and export rateBoard of directors the board of directors should be decided.Chairman the chairman of the joint venture must be decidedGovernance the rule of the countries to govern the joint ventureRole definition each party role must be stated clearlyProfit share the percentage of sharing profit between the parties must also be agreed upon.Inflation possible solution in case of inflation in any of the countries must be taken into account.Resources availability resource availability in terms of assets, equipment, rent, intellectual property right must be well planned.Legal issueIn joint venture company, legal agreement is essential and this can be by word of mouth, gentlemens agreement, memorandum of understanding (MOU), detailed specification, evergreen, full contracts and many more (class module).In international joint venture, the following issues must be consideredGoverning law the law of the country to govern the contract must be agreed upon.Payment method t here must be an agreement on the type of payment method accepted.IPR the right of each partner in terms of Intellectual Property Right must be stated. Patent right, copyright, trademarks etc must also be considered.Termination it should be stated under which condition can any partner terminate the contract. Common events that terminates contracts areWhen the contract expiresChange of goal of one of the partnersBreach of contract by any of the partiesFinancial or legal issue.Responsibilities what is expected from each party need to be understoodFinancial right they must know their financial right.Veto power there must not be a partner enforcing power on the otherCommunication the way in which communication will be transferred from place to place must be addressed.Managerial right the level in which each company will operate in terms of management must be stated.Capital what each partner will contribute and what they will get out of it in terms of profit, product etcTransfer o f share there must be a mutual agreement on the share transfer, normally the parties entering into a joint venture is not expected to transfer its share to third party without the consent of its joint venture partner.Agreement the management team must ensure that there is a proof of agreement between the partners.Language the language of the contract must be plain and well understood by the joint venture companies.Criteria for selecting a partnerClear definitions and Common Objectives select a partner that brings no hidden agenda when negotiating with them, the objectives must complements each other and there must be an evidence that the parties need each other, the language of the contract must be well understood.Strategy clarity and compatibility the strategy of company A and the potential partner must be very clear, well understood and compatible with each other.Financial strength it is advisable to partner with a company that has a very strong financial base as it was expl ain in this module.Mutual benefit win-win attitude and approach is the example for the joint venture partner there must be a low risk of either of the partners becoming a competitor.Previous track records it is not advisable to go into joint venture with a company that has a poor track record in terms of partnership, financial or customers satisfaction.Management Culture compatibility as different companies from different countries operates on different culture, there must be a clear understanding of the potential partner culture in compatible the yourCompatibility of CEOs and Senior managersMarket power how strong the potential partner are in the market, customers satisfaction, suppliers relationshipOverseas experience the experience they have in doing business outside their parent country, how it was managed and the success stories they have had in the past.Product relatedness the products of the joint venture companies must supplement each other, there must be product rela tedness.Proper match there must be proper match in terms of objectives, strength, weakness, opportunities, weakness, culture, financial capability, product relatedness, strategy and so on. There must not be gaps left behind or overlook.Common ObjectivesStrengthStrengthMore opportunitiesLess threats