Motivations and Suitability of International Joint Ventures in Global Expansion

This report provides an understanding of the motivations behind the formation of international joint ventures and their suitability in global expansion. It analyzes the decision-making criteria for the use of international joint ventures and assesses the benefits and challenges of using them in foreign market entry. The report also discusses the importance of international business in expanding market reach and increasing market share.

Individual Academic
Report

CONTENTS
Introduction................................................................................2
Literature review........................................................................2
1. Demonstrate an understanding of the motivations behind the formation of International joint
ventures and in the internationalisation/globalisation process 2
2. Analyse the decision-making criteria that determines the suitability of the use of
international joint ventures.....................................................3
3. Demonstrate an understanding of the suitability of international joint ventures in
international/global expansion................................................4
4. A critical assessment of the benefits and challenges of the use of international joint ventures
in foreign market entry........................................................5
Discussion and analysis.............................................................6
1. Demonstrate an understanding of the motivations behind the formation of International joint
ventures and in the internationalisation/globalisation process6
2. Analyse the decision-making criteria that determines the suitability of the use of
international joint ventures.....................................................7
3. Demonstrate an understanding of the suitability of international joint ventures in
international/global expansion................................................8
4. A critical assessment of the benefits and challenges of the use of international joint ventures
in foreign market entry...........................................................8
Conclusion.................................................................................9
References................................................................................11

INTRODUCTION
International business is the purchasing and selling of goods and services across national
borders of a country (van Hoorn and Maseland, 2016). In this businesses expands their selling
and manufacturing activities in other countries with the help of analysing the needs of other
countries. It involves exploration of business opportunities in other countries such as access of
cheap labour, raw material, infrastructure and other factors of production. It helps in expanding
business activities for earning more profits in other countries. It occurs due to presence of
various factors such as saturation of market opportunities in home country, exploitation of
market opportunities in foreign countries, lower tax rates, rules and regulation for conducting
business and other factors etc. International business is one of the vital strategy for expanding
and diversifying business areas in other countries. This helps in exploring business opportunities
outside national boundaries of a company. It helps business to understand international market
with analysing needs of consumers and identifying target audience in new markets. Thus,
international business is important for increasing market share and expanding market reach or
customer base of a company. Cafe pod is a retail coffee brand in London with large variety of
drinks. In this report it includes international business practices with respect to various macro
factors in the market and its impact on company. It involves analysis of international market
patterns and methods for minimising risk in international market.
LITERATURE REVIEW
1. Demonstrate an understanding of the motivations behind the formation of International joint
ventures and in the internationalisation/globalisation process
Forming International Joint Venture for the companies many times proves a better option
for the internationalisation of the business but this doesn't happen without any motivation. Going
global is a big task and this needs a big motivation (Collinson, Narula and Rugman, 2016). If a
company goes for the joint venture, then it can achieve the economies of scale to compete
internationally and can bring more customers for the company.
Various motivations behind the formation of International Joint Venture are under:

 Reduction in cost: A company going for joint venture with another established firm can
share various costs incurred in the activity such as transportation cost, advertisement cost,
distribution cost, etc.
 Synergy effect: Companies can gain synergy effect by going through joint venture. They
can enjoy either financial synergy or operational synergy or can both, which will bring
more efficiency in the product which could not be present without joint venture.
 Less Competition: Every company wishes to have a less competition in the market and if
any company can get an opportunity to reduce one in the list from the competitors via
joint venturing then there would not be any other motivation for the company. Firm can
reduce its competitors if it gets into the process of joint venture, by this company can
gain competitive advantage and can cater more customers.
 Diversification: Diversification for a small company is necessary in order to grow and to
work on a large scale. Through this, a firm can either do horizontal diversification or can
do vertical or can also go for the conglomerate diversification.
2. Analyse the decision-making criteria that determines the suitability of the use of international
joint ventures
Making a correct and profitable decision for the suitability of the International Joint
Venture is very crucial and a matter of concern for the business entity (Bullough, Moore and
Kalafatoglu, 2017). A right decision can lead organization to the heights of success whereas one
wrong decision can lead company to shut the activity and suffer huge losses. Therefore, taking a
decision for the use of International Joint Venture is supported by various criteria out of which
few are discussed below:
 Company's Culture: Company's culture and behaviour speaks more about it. It is better
for the business entity to understand and get familiar with the culture of the host country.
By knowing about its culture the company can analyse whether the host company is
suitable for the joint venture or not. If the culture of the firm is understandable and is
favourable, then both the companies can work with mutual concerns and thoughts but if it
is not then there may arise the chances of clashes which will create a problem in near
future. So analysing about the culture before taking any decision will present an idea
about the suitability of the International Joint Venture.

 Homogeneity of the Product: If the venture partner deals in the same or related product
with the company then it will become easy for both the companies to maintain a
coordination between he operations and can use their techniques to make the product
innovative (Bullough, Moore and Kalafatoglu, 2017). The credibility enhancement from
the joint venture will also help in growth in domestic market.
 Financial Position: Company's financial position also affects its brand image and also
presents a view of the sustainability in the market. Through joint venture the company
can share its finances in order to use in the production or operations, sharing of finances
internally is better for any company as it need not to access external finances and pay
interests on it.
3. Demonstrate an understanding of the suitability of international joint ventures in
international/global expansion
Joint venture is basically focusing on strategic accomplishment in a particular area where
cooperation between individuals or companies is essential (Picciotto and Mayne, 2016). When
the venture is done with any overseas company or between any international companies then it is
treated as international joint venture.
 Tax and Risk reduction: Joint venture is best suitable for the companies who is having a
limited capital or is a small company in the market. Any company working at small level
can’t bear high risk and would be unable to pay much taxes so if the firm goes for Joint
venture the risk will be reduced along with the burden of taxes will also be lower. Risk
and burden of taxes are shared between all the venture parties hence does not lies on one's
shoulder (Kolk, Rivera-Santos and Rufín, 2018). Joint venture also helps in satisfying the
governments laws and rules internationally. When though joint venture one company
operates in another country which gives rise in revenue for the domestic company
ultimately boosts up the economy of the nation. Government also provides some tax
relief to the companies which as a suitability for the firms.
 Burden of Capital: Capital is something which is a key to the success of every business
and no business can work without having capital. When two or more companies forms a
joint venture and every one puts a separate capital into business then they all shares the
burden of capital in a mutually decided ratio. When this burden reduces it encourages

companies to invest in the venture and also attracts new firms to join, which later on
takes a project into its heights.
4. A critical assessment of the benefits and challenges of the use of international joint ventures
in foreign market entry
International joint Ventures provides several benefits to all the companies which are
making a contract for the venture (Casson and Wadeson, 2018). When thinking about the
management of another country it sounds frightful as it gives rise to many questions such as their
way of managing things, market view, etc. Few of the benefits are listed below:
 Well-known suppliers and distributors: It is easy for the home company to enter into a
joint venture with the host country. Being already an established firm in the market the
company is having enough knowledge of the suppliers and its distributors which they can
use in their joint venture and can stay stress free as they are known. Having well known
suppliers and distributors reduces the extra burden of the company and also reduces the
cost of search.
There are more benefits to the companies for International Joint venture.
Every coin has two faces out of which one is favourable and one is a bit challenging for
the firms. Likewise, if the companies are enjoying several benefits of the venture they, also faces
some hardships in the form of challenges (Buckley, Burton and Mirza, 2016). Going global is not
an easy task it requires to deal with many challenges, out of which few are described below: -
A thorough research: Doing a research into international market for the survival is a big
challenge for any company. It is like walking on the unknown road and finding the right path to
get reach the destination. Getting awareness about the market and the company with whom joint
venture is going to be taken place is a tedious task for any company.

DISCUSSION AND ANALYSIS
1. Demonstrate an understanding of the motivations behind the formation of International joint
ventures and in the internationalisation/globalisation process
Cafepod being a small company can go into join venture in US which will surely prove a
good decision by it (Sharma and et.al., 2017). As signing a venture by a small company in a
developed country will opens a door for growth. US is a developed market and launching of a
product in a developed market is a great opportunity for the company.
The motivation behind forming an International Joint Venture by Cafepod are under:
 Diversification: Diversification always proves better for any company and getting
diversified with the adoption of joint venturing is a good motivation for the firms like
Cafepod. Cafepod can diversify its product or can launch new product in the US market
with the help and guidance of already established brand in the market. By this the
Cafepod can enjoy high profits which can be a limited one if not diversified.
 Credibility Enhancement: Cafepod being a small scale company definitely wishes to
increase its credibility in the market. If Cafepod wishes to enhance its credibility in the
market with a strong customer base, then going for joint venture can be a good
opportunity for the it. A well-established US firm will help Cafepod in enhancing its
credibility. Joint venture will provide more new customers to the firm and enhanced
marketplace which will be a best decision for company.
 Increased Productivity: When Cafepod will operate at international level then its sale
will increase and when it will increase it will bring more productivity into the product.
More productivity will cut the product cost and will provide more scope of raising profit
margin of the Cafepod (Philipson, 2016). It will further bring efficiency in the product
delivery and services. Which will create a brand image of Cafepod into both international
as well as in domestic market.

2. Analyse the decision-making criteria that determines the suitability of the use of international
joint ventures
The most important factor which affects the working of any company is its decisions.
Better and efficient will lead to growth of Cafepod and a wrong or a non relevant decision will
hamper the company (Vardy and Schwartz, International Business Machines Corp, 2016).
Cafepod being a small company needs to takes its decisions very effectively and by analysing
each and every stone of it. Cafepod can concern on the following areas:
 Availability of Resources: Here availability of the resources is talked in context of the
host country with whom Cafepod’s joint venture would be taken place. Joint Venture
involves the pooling of resources by each firms into a contract and if a company is not
having enough required resources then it would be hard for Cafepod company to manage
the operations without the availability of such resources. Availability of the resources
will have an impact on its sales. If the resources are not available, then the sale of the
product in the market will be less and if the resources are available the sale will be good.
Therefore, resources are one of the most important decision-making criteria.
 Experience: Experience is something which is needed in any business to achieve
success. For the Cafepod experience is very important. If a company is not having any
experience of what it is going to do, then it would prove a false decision in respect of
International Joint Venture. When Cafepod is wishing to going global for the joint
venture, it will expect a firm which is experienced in its region in order to operate in an
efficient manner. Experience brings an opportunity for the long term survival in the
market.
 Financial Position: If company is not enough financial stable to meet out its short term
expenses or cannot meet the contingencies on time, then Cafepod will face a problem. If
a firm is suffering losses, then going for a joint venture with the particular company will
be a bad decision to Cafepod. Profitability of any company is very important and every
company going for the venture will definitely analyse the positions.

3. Demonstrate an understanding of the suitability of international joint ventures in
international/global expansion
A specific task or any project done by the two or more business firms who agrees to share
the cost of the project, the profits and losses is refereed as joint venture. All of the firms who
agrees invests their resources to complete the project or to fulfil the requirements of the project.
To form a joint venture, the firms can either be any corporate or any partnership firm or any
company.
It is done by signing a contract between all the joining firms mentioning the purpose and
other information’s such as share of profit and loss, pooling of resources, management and its
control etc.
Discussion:
Cafepod is expanding its business in US by adopting the strategy of International Joint
venture as this provides several benefits to the company. The strategy is best fit because of
several reasons such as Economies of Scale, Licensing Technology, Reduce Risk, etc.
Economies of scale means making a product more efficiently and effectively. Another reason for
this international joint venture is Licensing the technology, with the help of this strategy Cafepod
can get its patents licensed which can be a profitable deal for it. International joint venture also
proves better in order to reduce risk in relation to the risk of getting skilled labour, knowledge of
foreign market, and also reduces the per cent of dependency in US market.
Cafepod can also share its ownership legally with the company with whom joint venture
is taking place and can run business together. Both the firms can create a new brand or new
product to offer in the market. Cafepod can increase its productivity with joint venture in
international market, increase productivity will lead to more sales and ultimately will achieve the
targets of generating higher revenues.
4. A critical assessment of the benefits and challenges of the use of international joint ventures in
foreign market entry
If a company is operating in the market then the sole motive is to gain benefits, no
company will survive to meet the losses hence Cafepod will find the option which will provide

benefits to it. For Cafepod this International Joint Venture will bring various benefits but on the
other hand will accompany many challenges.
The benefits which Cafepod will enjoy is:
 Cheaper Access to the market: Getting things on a lower rate is always preferable by
the company especially for the small companies like Cafepod. When Cafepod company is
signing a venture with another existing company in US market then it need not to set up a
new office or a new premise to operate in the market. The premise of the existing US
company will be used for the course of business, hence reduces the establishment cost of
Cafepod and makes the market access cheaper.
No business exists without facing any challenges. Challenges are always supported by the
growth (Leonidou and et.al., 2015). As the company grows it needs to face more and more
challenges for the success. Cafepod is going for a joint venture with the purpose of growing, so
Cafepod will need to face some challenges. The challenge which will be backed by the benefit is:
 Management Coordination: UK and US both has its own management and their own
way to deal with it. For the success of the business it is mandatory to have a coordination
within and between the management team. Developing a coordination with the
international company's management team is a big challenge for Cafepod as if there is no
coordination then the venture would prove a mistake and Cafepod will need to bear huge
losses. Cafepod is a small company and it is going to do business with a big giant of US
so the management of US company will be bigger as well as powerful. Company needs to
coordinate with the team of US company in order to survive in the market.
CONCLUSION
From the above report it has been summarised that joint venture has increased
dramatically over the past few years. Companies recognise that it is needed to evaluate best
strategic direction that may assist them in expanding business easily in different country. Joint
venture enables companies to get a fast access into new market as well as distribution channels,
acquire new skills and competences to develop new products and services. Beyond that, such
practices and strategies offer a possibility for companies to increase growth opportunities, reduce

financials risk, accelerate economic growth, reduce financial risk and so on. Moreover, growing
numbers as well as maximising significance of international joint venture many of them are
unsuccessful. One of the most effective reason for joint venture failure is incompatibility
between partners. Therefore, it is required for an organisation to evaluate all the possible
challenges that may raise in future while a firm expanding its business in different countries. In
such scenario, the choice of right partner can yield significance competitive benefit whereas the
choice of incompatible partner can lead to impassable problem. This is especially important in an
international setting where differences in culture, economic development and government
policies increase the complexity of the c0ontext where the alliances are embedded.

REFERENCES
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