International joint venturesInternational joint venture is the type of equity-based cross-borderallianceA joint venture is a contractual business undertaking between two ormore parties. It is similar to a business partnership, with one keydifference: a partnership generally involves an ongoing, long-termbusiness relationship, whereas a joint venture is based on a single businesstransaction. Individuals or companies choose to enter joint ventures in order toshare strengths, minimize risks, and increase competitive advantages inthe marketplace
International joint ventures and the rational behind their formationVarious theories and models have mentioned thatInternational joint ventures offers unique benefits of cross –cultural meshingeach organisation ’s complementary skill ,assure or speed up market accessTrans-nationally ,leap-frog the host nation’s technological gaps, and strategicallyrespond to increasingly intense national and global competitionIJV’s have proliferated because individual companies recognize that expansionInto new markets can be resource –intensive and risky.Glaister and buckley identify five major perspectives:1)Mainstream economics orientation ~ extension of the firm by alliance as a meansto obtain economies of scale2)The transaction cost approach ~reduction in cost3)Resource dependence ~to extend the firm’s domain of control through verticallinks and risk sharing4)Organizational learning ~ transfer of technology and exchange of patent motive5)Strategic positioning ~ suggest that alliances are formed by desire to shapecompetition and consolidate the firm’s market position
Joint ventures and national cultureHome country :Freedom of movement of capital across borders and off-shore ownership is majorinfluencing factor regarding the decision to enter in alliances with foreign firmsOperating outside one’s own country In most liberal-trade nations portfolio and other forms of share-ownership in firmsoperating abroad are not hindered by the state, but in protectionist economies the flowof capital from the domestic market to foreign lands and either severely restricted or notPermissible at allTaxation policies makes home country to engage in joint venturesAcc to Beamish tax advantage in the home country result because in some countries themonitory ownership is treated as an investment whereas wholly-owned subsidiaries andmajority-owned joint ventures are not.
Host country:host country forms the immediate external environment of IJV’s with which it hasInteract & to whose pressure and expectations it has to respond.Company undertaking expansion through IJV’s need to understand the significantelements of local country culture, especially in terms of initial negotiation and partnerselectionIJV’s here mainly falls in to 6 broad categories1)Legal system2)Political culture3)Industrial relation culture4)Level of economic advancement5)Membership of global & regional agreement6)National culture as a wholeForeign partners in IJV’s voluntary give up some of their managerial prerogativein HRM area because of local complications
Effects of national culture on international joint venture operationInternational joint ventures bring together two or more sets of employees whosenational culture gives fundamental difference in views on what constitutes a desirablemanagement style or approach.Schoenberg and his colleagues studied major Anglo –French joint ventures fromchemical and engineering sectors which formed between 1986 & 1989.They compared the two nations on Hofstede’s dimension ,power distance&uncertainty avoidance. In comparison the French management style was widely perceived as being moreautocratic with decision making, authority clearly concentrated at top managementlevels. Where British executives were accustomed to leave more discretion to middlemanagement levels--The two mgt style were failed in decision making discretion at same organizationallevels These kind of cultural clashes show the extent to which we all take our home grownassumption for granted and expect others to know them and behave accordingly