A ''Joint Venture'' is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares.

Establishing a joint venture with a foreign firm has long been a popular mode for entering a new market. The most typical joint venture is a 50/50 venture, in which there are two parties, each of which holds a 50 percent ownership stake and contributes a team of managers to share operating control. Some firms, however, have sought joint ventures in which they have a majority share and thus tighter control.

In a joint venture: ''//each partner contributes something that the other partner does not have//'', for example:
* We have intangibles, we'd like to use them in additional geographic arenas
* Partner has local market knowledge

!Advantages
Joint ventures have a number of advantages:
* First, a firm ''benefits from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business systems''.
* Second, when the development costs and/or risks of opening a foreign market are high, ''a firm might gain by sharing these costs and/or risks with a local partner''.
* Third, in many countries, ''political considerations make joint ventures the only feasible entry mode''.
!Disadvantages
Despite these advantages, there are two major disadvantages with joint ventures.
* First, as with [[Licensing]], a firm that enters into a joint venture ''risks giving control of its technology to its partner''.
* A second disadvantage is that a joint venture ''does not give a firm the tight control over subsidiaries that it might need to realize experience curve or location economies''.
* A third disadvantage with joint ventures is that the ''shared ownership arrangement can lead to conflicts and battles for control'' between the investing firms if their goals and objectives change or if they take different views as to what the strategy should be.

!Industry Examples
A joint venture entails establishing a firm that is jointly owned by two or more otherwise independent firms. Fuji-Xerox, for example, was set up as a joint venture between Xerox and Fuji Photo (see [[M21-S7 - Case - Xerox and Fuji-Xerox]]). 

For many US firms, joint ventures have involved the US company providing technological know-how and products and the local partner providing the marketing expertise and the local knowledge necessary for competing in that country. Research suggests joint ventures with local partners face a low risk of being subject to nationalization or other forms of government interference. This appears to be because local equity partners, who may have some influence on host-government policy, have a vested interest in speaking out against nationalization or government interference.

Consider the entry of Texas Instruments (TI) into the Japanese semiconductor market. When TI established semiconductor facilities in Japan, it did so for the dual purpose of checking Japanese manufacturers' market share and limiting their cash available for invading TI's global market. In other words, TI was engaging in global strategic coordination. To implement this strategy, TI's subsidiary in Japan had to be prepared to take instructions from corporate headquarters regarding competitive strategy. The strategy also required the Japanese subsidiary to run at a loss if necessary. Few if any potential joint venture partners would have been willing to accept such conditions, since it would have necessitated a willingness to accept a negative return on their investment. Thus, to implement this strategy, TI set up a wholly owned subsidiary in Japan.

The joint venture between Boeing and a consortium of Japanese firms to build the 767 airliner raised fears that Boeing was unwittingly giving away its commercial airline technology to the Japanese. However, joint venture agreements can be constructed to minimize this risk. One option is to hold majority ownership in the venture. This allows the dominant partner to exercise greater control over its technology. The drawback with this is that it can be difficult to find a foreign partner who is willing to settle for minority ownership.

According to Tony Kobayashi, the CEO of Fuji-Xerox, a primary reason is that both Xerox and Fuji Photo adopted an arm's-length relationship with Fuji-Xerox, giving the venture's management considerable freedom to determine its own strategy. However:

''//Much research indicates that conflicts of interest over strategy and goals often arise in joint ventures, that these conflicts tend to be greater when the venture is between firms of different nationalities, and that they often end in the dissolution of the venture.//''

Such conflicts tend to be triggered by shifts in the relative bargaining power of venture partners. For example, in the case of ventures between a foreign firm and a local firm, as a foreign partner's knowledge about local market conditions increases, it depends less on the expertise of a local partner. This increases the bargaining power of the foreign partner and ultimately leads to conflicts over control of the venture's strategy and goals.
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mbi_public
created
Sat, 07 Jan 2012 08:45:00 GMT
creator
dirkjan
modified
Sat, 07 Jan 2012 08:45:00 GMT
modifier
dirkjan
tags
M21
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creator
dirkjan