International Business Strategy: IJV

This essay discusses International Joint Ventures (IJVs) as an international business strategy, including the definition of IJV, reasons why companies enter IJVs, risks partaking, economies of scale, international market access, geographical restraints, funding restrictions, acquisition obstructions, failure in IJVs, and ways to reduce the possibility of failure.

Running Head: IJV 0
International Business Strategy
Management: International Joint Ventures
(Student details :)
2/25/2019

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Contents
International Business Strategy: IJV..........................................................................................2
Introduction................................................................................................................................2
International business strategy...................................................................................................2
Definition of IJV....................................................................................................................2
Reasons why companies enter IJVs.......................................................................................3
Risks partaking...................................................................................................................3
Economies of scale.............................................................................................................3
International Market Access..............................................................................................3
Geographical restraints.......................................................................................................3
Funding restrictions............................................................................................................4
Acquisition obstructions.....................................................................................................4
Failure in IJVs........................................................................................................................4
How can the possibility of ‘failure’ be reduced.....................................................................5
Economic factors................................................................................................................5
Ensuring healthy economic environment of IJV................................................................6
Ensuring healthy work cultures of IJV...............................................................................6
Examples of successful IJVs..............................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................7

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International Business Strategy: IJV
Introduction
This essay is focused on international joint venture (referred as IJV) as an international
business strategy. The paper will focus on why an organization would choose to enter into an
IJV.
In this context, a joint venture occurs whenever 2 businesses based in 2 or more nations
create a partnership. For an example, companies like Nissan and Renault announced a joint-
venture for producing electric vehicles in China (Harrigan, 2015). In the series of successful
IJVs, there are names like Vistara, BrahMos Aerospace and Boeing. As the ‘failure’ rate of
international joint ventures is getting high these days hence essay will discuss on what can be
done for increasing the probability of the successful outcomes for an international business
(Austin & Pinkleton, 2015). To do so, essay will critically discuss above mentioned issues
and topics by using appropriate international business models, frameworks, as well as
examples. Besides, the paper will also define IJV while providing the reasons for companies’
entrance in the IJVs (International Joint Ventures & Agreements, 2018). Finally, the essay
will provide the ways through which possibilities of failure in IJVs can be reduced.
International business strategy
Definition of IJV
IJV means, organizations tie-up with each other’s as the partners in order to launch an
integrated company (Hill, 2008). Generally, an IJV includes synergizing technical expertise
from first company and using manpower, physical, and rest resources of the local partner in
order to create a cost-effective enterprise (International Joint Ventures & Agreements, 2018).
IJVs are usually developed while two or more companies operate together to fulfil a set goal.
For an instance, organization A and organization B identified and selected an IJV partner. In
this context, the joint venture process involves various steps like market research, partner
research, weighing alternatives, business valuation, negotiations, business planning, as well
as due diligence. In this way, all above steps are to be adopted by each company which
intends to enter IJVs (Zahra & Nambisan, 2012). Moreover, some legal procedures are also

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involved while making IJVs like IJV agreement, subsidiary agreements, as well as regulatory
approvals. Hence, after all of these procedures get completed, the IJV Company is created as
well as during the final step of formation and management takes place (Harrigan, 2015).
Moreover, famous international business theory; institutional theory can be used
progressively through international business as well as management researchers for
explaining the strategies and behaviour of multinational corporations (Buckley & Ghauri,
2015). Additionally, origins as well as development of institutional theory of international
business can be traced in sociology, economics and political sciences. In addition, resource
dependence theory (RDT) can be further utilised to study IJVs as it is a study of impacts of
the external resources of organizations over the behaviour of that organization. Hence,
procurement of external capitals is also vital tenet of tactical and strategic management of an
organization (Lasserre & Schutte, 2006).
Similarly other frameworks and theories of international business strategies include
increasing returns which are the fundamental causes of international trade like comparative
advantage. The role of this theory has been abandoned on account for the modelling market
structure (Buckley & Ghauri, 2015).
Reasons why companies enter IJVs
The companies enter IJVs when they want to experience international trade without facing up
the fully accountabilities of cross-border business trades. In this case, they can have the
option of starting IJVs with any foreign partners (Bass & Dalal-Clayton, 2012). In addition,
there are so many other reasons why international businesses get involved into IJVs. These
motivations which lead to the formation of IJVs are as follows:
Risks partaking
This reason is common while forming an IJV, especially, in extremely capital intensive
industries as well as in those businesses where the great cost of product development is
equals to high likelihood of failures of a specific product (Bosua & Venikitachalam, 2013).
The economies of scale
If any industry is having huge fixed costs, the IJV with a greater company can offer the
economies of scale required to contend internationally. IJV is also an effective way through
which 2 or more companies can share resources as well as attain critical mass (Dodgson,
2018).

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International Market Access
For those international companies which lack in basic understanding of consumers as well as
the relationship or infrastructure for distributing their products to consumers, establishing an
IJV with a right international partner can easily offer instant access to an established, efficient
as well as effective distribution channel and accessible consumer bases. Getting access into
international markets is important for a company as producing new distribution channel and
finding novel consumer bases can be highly problematic, time-consuming as well as costly
activities (Forbes, 2017).
Geographical restraints
If there is a smart business prospect in the foreign market, then making JV with a local
organization will be more attractive to a foreign firm as probing a foreign market will be
difficult (Howland, 2013). The reason behind above statement is that a lack of knowledge in
international market as well as local obstacles to foreign-controlled or foreign-owned
companies play as geographical restraints for any company.
Funding restrictions
Whenever a company is challenged with huge up-front development costs, discovery of the
right joint venture partner (JVP) can provide required financing as well as reliability with the
third parties (Kapferer, 2012).
Acquisition obstructions
If a firm wishes to acquire another one but due to budget, size, legal or geographical
constraints it is not able to do then, partnering with a JVP will be an attractive alternative. In
this case, IJV is significantly less costly and hence less risky than those of total acquisitions
(Key Differences, 2017).
Failure in IJVs
 A major reason behind the failure in IJVs is that IJVs are very difficult to assimilate
into an international strategy which includes considerable cross-border trading. In
these circumstances, inevitable issues concerning inward as well as outward transfer
valuing and sourcing of trades (Sternquist & Goldsmith, 2018).
 Another major reason of the failure of the IJV is occurs when the goals and objectives
of the venture partners are mismatched. For an instance, a multinational company may
have a distinct attitude to take risk than the local partner, as well as may be ready to

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accept short-term fatalities for building market shares. Likewise, goals of the involved
partners may change over a span of time which causes conflicts and hence IJV get
failed (Weaver, 2017).
 Failure occurs when issues related to management structures as well as staffing of
joint ventures occurs at extended level.
 Furthermore, most of the IJVs fail because of the conflicts in tax interests amid the
involved partners.
 In addition, organizing IJVs pose a challenge while involved parties are from 2 or
more different jurisdictions or cultural backgrounds. In such cases if companies are
not able to cope up with the changed cultures at the joint venture then IJV fails
(Sternquist & Goldsmith, 2018).
How can the possibility of ‘failure’ be reduced
If IJVs are managed in an effective manner in the supervision of the great leaders then there
is no better international business strategy than an IJV. By considering these below listed
factors which affect IJV considerably, any organization can reduce the possibility of failure
into an IJV:
Economic factors
Good planning and formation
The major difficulties which arise in IJVs are generally the results of poor planning as well as
formation. For an example, marketing strategy of a company may fail if any product was not
appropriate for the IJV or when the partners involved failed to critically assess the influential
factors involved. In this way, to avoid failures involved partners should pay attention to
analyses of the environment as well as consumers the joint venture hope to function in.
hence, failure of doing this impact negatively on the venture as well as create future problems
(The Internatioanl Resource Journal, 2018).
By improving financial performance
One of the greatest ways of making IJVs successful is averting financial disputes amid
involved parties. Failures in IJVs usually occur while the financial performance of the
venture is poorer than estimated. Poor financial performance can be improved through either
good sales or effective cost analysis. Possibilities of the failures in IJVs can be reduced by

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approaching the market with adequate management productivity as well as unanticipated
deviations in the market scenario. Thus, effective solution of failures in IJV is to assess
financial situations before as well as during the joint venture (University of Florida training
and organization, 2018).
By solving management problems
The main failure cause of joint ventures is an ineffective mixing of venture managers who are
not used to work together due to their entirely distinct means of solving problems of the
organization. Furthermore, it is a well-aware that most of the IJVs fail due to
misinterpretation over leadership strategies. In this way, to ensure a successful IJV, an
understanding as well as compromise amid involved parties must be maintained. In addition,
integration and respect of the strengths of each side for overcoming the weaker points will
make the strategic alliance stronger (Weaver, 2017).
Ensuring an appropriate management structure
While attempting to have equivalent rights in the IJV, there could be a rebel of the managers.
Hence, a great slowdown of decision-making processes causes failure in IJV. In this way,
ensuring an appropriate management structure could prevent the joint venture leading to
critical issues in the long run (Weaver, 2017).
Ensuring healthy economic environment of IJV
As we know that an ultimate objective of a successful IJV partnership is more and more
customers as well as a stronger body. In order to ensure an IJV's partnerships as profitable as
possible, they must be looking from the consumer's point of view. Hence by channelling the
expertise as well as strengths of both involved parties for maximizing value for the
consumers as well as stakeholders will ensure a healthy economic environment of an IJV.
Ensuring healthy work cultures of IJV
As we know that whenever an IJV is formed, blending of two or more cultures occurs which
produces many work culture challenges as well as barriers. In this way, lack of understanding
of the both cultures of the involved parties causes critical problems when not addressed.
Hence, ensuring healthy work cultures at IJVs will further minimize the possibilities of
employee level conflicts and improve work efficiency with providing positive work culture
(International Joint Ventures & Agreements, 2018).

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Examples of successful IJVs
Omega Navigation Enterprises Inc. (ONEI)
ONEI is an international supplier of nautical transportation services mainly focused on
seaborne transportation of petroleum products (Sternquist & Goldsmith, 2018).
Aera Energy
The large portion of California is covered by Aera Energy being state's top oil and gas
producer Aera Energy's possessions range from the Los Angeles Basin to Coalinga in the
north area. In addition, Aera Energy has welfares in real estate processes. This production
and exploration company is an IJV of affiliates of Royal Dutch Shell and Mobil (Sternquist &
Goldsmith, 2018).
Japan Nuclear Fuel Co., Ltd. (JNF)
JNF has started their operation in Kurihama in the year 1967. It is a nuclear fuel manufacturer
joint venture of Toshiba Corporation, Hitachi Limited and General Electric Company (US)
(Sternquist & Goldsmith, 2018).
Conclusion
In conclusion, IJVs are becoming popular way of international business for the companies
which outsource their operations for retaining the ownership. In addition, creation of a novel
legal entity in an international joint venture has its ups and downs. With the help of relevant
examples, the essay has defined IJV in a broad way. Reasons why international businesses
enter IJVs as well as advantages and disadvantages of the entry modes have been discussed in
detail. The essay has also defined failure in IJV from the perspective of individual partners.
After discussing the failures and causes of failures, writer has discussed the ways through
which possibilities of failure can be reduced. In this context, measures to reduce the
possibilities of failures in IJVs include ensuring healthy workplace culture, economic
environment, financial condition and many more. Moreover, by highlighting the major causes
of failures with the dark sides of IJVs, the academic essay has offered a deeper understanding
of IJV and failures in IJVs for all of its readers. Finally, IJVs are the part of great
international business strategies which promotes international business as well as cultural
intelligence at broad level. In this way, all the stakeholders of IJVs must take care of the
highlighted issues, problems, challenges, barriers as well as other factors which have been
discussed in this academic essay in order to make global business strategies successful.

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