International Joint Ventures

Running head: INTERNATIONAL MANAGEMENT
International management
Name of the Student
Name of the University
Author Note

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Executive summary:
The paper is develop to address the research topic “International Joint Ventures (IJVs) are
a useful means of overseas expansion for multinational enterprises (MNEs)”. An analysis
is conducted on the facts of the international joint venture by outlining the reasons why
multinational enterprise uses venture partnership to explore the business opportunities. A case
study demonstrating the failed and success of international joint venture has been presented.
The success of the venture between Telstra Corporation and Telkom has been discussed and
it is found that their strong partnership is driven by the commitment of both organizations to
provide network services to their client. On other hand, venture between Woolworths and
Lowe failed due to poorly framed strategy and workplace culture. IJVs should be strategize
accounting factors such as cultural gap, basing decisions on real facts and proper market and
development strategy.

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Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................3
Explaining the joint ventures and identification of the circumstances under which MNE uses
joint ventures:.............................................................................................................................3
Identification of one successful international joint venture and discussing the reasons for its
success:.......................................................................................................................................4
Identification of one failed international joint venture and discussing the reasons for its
failure:........................................................................................................................................6
Recommendations on how international joint venture can be managed successfully:..............8
Conclusion:..............................................................................................................................10
References list:.........................................................................................................................10

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Introduction:
The report is prepared to conduct an in depth analysis on the research topic
“International Joint Ventures (IJVs) are a useful means of overseas expansion for
multinational enterprises (MNEs)”. For this purpose, a case study approach has been adopted
and analysis of two cases one success and another failure has been discussed. In this regard,
one successful join venture between Telstra Corporation of Australia and Telkom has been
discussed. On other hand, one failed venture between retail giant of Australia that is
Woolworths with Lowe of US has been discussed. On the Australia business scene, joint
venture is an emerging trend and it is surveyed that half of such ventures would fail to deliver
the business goals and objectives.
Discussion:
Explaining the joint ventures and identification of the circumstances under which MNE
uses joint ventures:
One can describe an international joint venture, as a partnership of two businesses
based in two or more than two countries. For instance, if any company wants to investigate
and explore international trade without having taken the full responsibilities of the cross
border trade transactions, so they can opt for a joint venture having a foreign partner so that
the responsibilities are evenly and equally distributed among the partners in the venture. The
foreign investors which enters into forming a joint venture are assured to minimize the risks
which comes with an outright acquisition of the business. There are few basic elements
related to forming International joint ventures these are: Contractual Agreement, Joint
Property Interest, Common Financial and Intangible Goals and Objectives, Specific Limited

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Purpose and Duration, Shared Profits, Losses, Management, and Control (Parameswar 2018).
Therefore, companies look for international joints mainly to have access to the market
available in the foreign countries also achieve a common goal or reach a specific consumer
market which can help them in their overall growth and development (Nwogugu 2018).
However, there are several constraints under which the MNCs internationalise by entering
into joint ventures. These are stated here as under:
1) Risk Sharing- One of the most common reason behind a joint venture is the companies
need to share the uncertainties and risks associated with the business market mainly in the
highly capital intensive business where there is a greater chances of failure due to the high
production (Panibratov et al. 2020).
2) Geographical constraints- Pertaining to the geographical conditions, where there is an
attractive opportunities for trading in foreign companies by partnership with a local company
to any foreign company as it might be difficult for the local traders to have an access in the
foreign market due to the inexperience and local barriers to foreign-owned or foreign-
controlled companies (Li et al. 2017).
3) Access to International Market- For a local company having insufficient power and access
in channelizing and distributing their products and services to the customers a joint venture
can help them get through it by means of introduction to the effective and efficient
distribution channels. It is very significant reason for a company to get into a JV because
recognizing and accessing to the correct distribution channels and partners are essential to
achieve the industrial goals (Nwogugu 2018).
4) Funding Constraints- A joint venture can help a company in raising finances and
credibility from the third party whenever there is a confrontation arising from the
development costs.

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5) Acquisition Barriers- In case a company, wants to achieve over another sector but due to
market constraints fails to do that, IJV’s can be the effective way to get through it (Song
2017). IJV’s are less costly and has lower risks associated with it than complete acquisition
so this can be considered for entering the different territory.
Identification of one successful international joint venture and discussing the reasons
for its success:
In this section, one example of successful joint venture has been discussed by
outlining the reasons for its success. Telstra Corporation which is the largest mobile network
of Australia entered into agreement in the form of joint venture with the Telkom of Indonesia
in year 2014. The agreement was signed between these two telecom operators with the
objective of providing services and network application to the Australian and multinational
companies operating in Indonesia and to the Indonesian enterprises (jakartaglobe.id 2020).
Such partnership is considered to be an important step forming a crucial part of the strategy
of Telstra in Asia and aligning with the objective of developing new business growth so that
the strength of capabilities of network application and services (NAS) can be leveraged. It
was mentioned by Telstra they intend to leverage respected brand, local expertise and service
capabilities in the fast growing market of network application and services by partnering with
Telkom of Indonesia. This particular joint venture was considered to grow significantly
because of strong position of Telkom in the market segment and its capabilities in the data
center and network. Maximum allowed 49% of the shares is held by Telstra in government
owned Telecom Company of Indonesia and the business is controlled by the president
director and majority of board of management comprising of three person
(asia.stevieawards.com 2020). However, the position of chairman in the supervisory board is
owned by Telkom

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The joint venture of Telstra Corporation and Telkom has been awarded the most
innovative venture. It is signified by the award about the first step ambitious targets
achievement and indicates a successful and long partnership. In addition to this, award also
marks the significance of union of culture of Indonesia and Australia. Good relationship has
been established by these two Telecom operators by bringing services and network
applications in Indonesia through the venture. Such merger has been a huge success as it
brought an unparalleled combination of solution experience that is managed globally and
deep local market expertise. Digital adoption in Indonesia has been driven by such
partnership by providing new offering to the customers at enterprise level across the country.
The ties between the companies is strengthened by the Telkom-Telstra exchange programs
and has helped in empowering companies in Indonesia. Telstra experience has been used in
conjunction with Telkom for designing, delivering and developing application, network and
services to the knowledge of its people and enterprise customers (abc.net.au 2020). Facilities
of Telkom was used by Telstra to deliver services to the foreign and Indonesia customers and
thereby avoiding the cost that it would have incurred in building and developing its own
infrastructure.
In today’s date, the continued partnership of the telecom operators further extends to
the collaboration of opportunities of venture in other region by leveraging experience and
deep local expertise in the investment of global venture. In addition to this, the partnership
success has been considered dynamic for the strategy of Telstra for extracting the vital profit
growth in the regions of Asia. The objective of such partnership on the financial terms was to
take the advantage of rising middle class of Asia. It was reported that the partnership
progressed ahead of the expectation with over $ 10 million invested by both the parties and
200 staffs locally trained. During year 2015, Telstra Corporation generated revenue of
amount $ 26.6 billion with fewer amount contributed from its international operations

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(telstraglobal.com 2015). The joint venture created cutting edge technology and new revenue
streams as the venture invested over Australian dollar worth 200 million over the past five
years in more than thirty different technological companies.
The partnership between Telstra and Telkom named as Telkomtesltra, is considered a
huge success as it helped in leveraging the strength of both the companies. Such venture
managed the large enterprises from several industries in Indonesia and delivering customers
with end to end managed solutions. Both the financial and non-financial results of such
venture has been remarkable and with its 101 project in 7813 sites delivered 101% of revenue
(afr.com 2015).
Identification of one failed international joint venture and discussing the reasons for its
failure:
This section demonstrates the failure of retail giant of Australia with one of the retail
companies of America utilizing in home improvement. Woolworths operates liquor,
supermarket and hospitality business and its partnered with Lowe in the business of home
improvement in year 2009. It was in year 2011, masters home improvement stores began
opening and currently, it exceeded sixty stores. These two companies entered into the joint
venture with the motive of tapping the thriving renovation market of Australia and enabling
Woolworth to expand their hardware business. It was planned by these companies to secure
the large format stores size in the next five years after entering into agreement. For the latest
fiscal year ending 2015, joint venture revenue including the hardware group, home timber
and the master’s stores were recorded at US $ 1.6 billion. Since 2009, the US retail giant
Lowe partnered with Woolworths and nearly $ 3 million was invested in the retail chain
without any return so far and making up the total accumulated loss to $ 500 million. The five
year Master experiment of Woolworths failed due to cocktail of reasons such as wrong

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locations, lackluster customer experience, flawed culture at workplace and poor strategy. This
joint venture failed and some possible reasons set out for the failure are as follows:
Wrong locations-In the current scenario, 62 stores owned by Masters, a joint venture
between Lowe and Woolworths and the ambitious plan of rolling out another 150 stores in
the next five years slowed down. Inferior locations has been chosen by Masters in the chase
of rapid rollout of the stores which was earlier rejected by Bunnings. However, the rollout at
quicker pace provided Masters with presence across the market of Australia. Nevertheless, a
lot of stores was opened in Victoria particularly and the cannibalism on this cannot be doubt.
The strategy of selecting good value sites, quality sites and doing at all the same time cannot
be done at a go and this strategy resulted in the failure.
Poor strategy- Entry of Woolworths into the big box oxygen aimed at sucking the
oxygen out from its main rival that is Wesfarmers, Bunnings so that it is distracted from the
new acquired super market chain that is Coles. It was found that the strategy had an opposite
effect and made the Woolworth distracted from its own business. Profitability of the broader
group has been pulled down due to its expansion into home improvement and resulted the
business to distract itself from its core business. This probably has resulted in the slowing
down its sales growth rate of the particular segment. It is evident from the figures that for the
past twenty five quarters, Woolworths was outperformed by Coles in terms of earning in
growth (Riksen et al 2016).
Flawed culture at workplace- Woolworths has been marked as a top down company
and the written policy of Masters about insisting their staffs to park their cars into the kerb
marks the symptom of rigid culture at workplace. It was reported that the workplace culture
was flawed. The rival of Masters, Bunnings on other hand maintained a workplace culture
generating various outcomes and the stores of Bunnings marked a day out by the families due

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to the weekend barbeque supporting activities for kids and local charities. Same enthusiasm
was never engendered by Masters and this factor also contributed to the loss to the loss of
Masters and the staggering annual loss was recorded at $ 245 million in year 2015 (abc.net.au
2015).
Wrong products- It was admitted by Masters that wrong products were sold at wrong
time of the year and the high margin basic hardware was ignored and entered into the highly
competitive sector of white goods. The failure was on the part of Masters failing to
understand the seasonality that is inherent in the hardware as the products meant by the
partnership were out of season in the markets of Australia.
The venture “Masters” failed and it was opined by the partner of Woolworths that too
many stores were opened under the chain without any format. It was alleged by Lowe’s that
Woolworths was engaged in the oppression of shareholders after the giant retailer decided to
broker three master deals and shutter master to sell off the master assets. From the last four
years, more than $ 600 million was lost by Masters (afr.com 2016).
Recommendations on how international joint venture can be managed successfully:
With the increase use of partnership between the cross border countries using the
international joint venture, it is important to ascertain some effective way of managing the
business. One of the ideal form of business organization is joint venture as it helps in
maximizing the synergies of partner and minimizing the risks (Devarakonda et al. 2020).
However, some of the ventures fail because of various reasons and some recommendations to
make the joint venture work are outlined in the paragraph below.
Local market- With the objective of seizing the opportunities via joint venture,
various issues have been observed such as one party relies too much on their local
counterpart. In this regard, it is possible that in order to attract the foreign investment,

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distorted information is provided and made them trap in so called “good news syndrome”.
However, such issues can be mitigated by the adoption of a robust process for directly
verifying the market information. When establishing the business plan, it is important to take
the follow ups and the accountability in the structuring of the business plan should be ensured
by hiring future general manager (Dau 2018).
Cultural gap- One of the significant issue faced in any international partnerships is
the different expectations about particular milestones and overall timing in the strategy
development and this significantly impacts the process of decision making. Different
management styles is another cultural aspect that should be accounted as the different in the
management styles across geographies and failure to deal with it results in the partnership
failure. It is required to well align the management styles so as to execute the strategy. Such
cultural gaps should be addressed using some learning process so that both the parties can
anticipate and understand in a better way (Beugelsdijk et al. 2018).
Setting off of various tracks- The fusion between the assets, capital and access to
technology is poorly reflected when shareholders are actually obligated to achieve the target.
Such issue arises on the failure of one partner to deliver what they promised initially. In
addition to this, issues also exist in term of economic expectations from the venture. It is
recommended to adopt a real risk analysis framework for assessing the sustainability and the
foundation of the partnership. The performance of partner should be measured by developing
a system and a transfer pricing mechanism. Ventures should be made to focus on the business
goals by adopting a process of pragmatic escalation supported by right protocols (Chang et al.
2020). In order to ensure the success of international joint ventures, three considerations that
are crucial are local market realities, cultural differences and vital interest overlapping.

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Conclusion:
The report presented a detailed discussion on the facts about international joint
venture that is considered as an important partnership strategy for the business intending to
operate internationally and mitigating the risks. There are several reasons that makes the
multinational enterprise to operate by forming joint venture. A case study on two joint
ventures one marked a huge success and another a failure has been discussed along with the
reasons that resulted in their success and failure respectively. The later section presents a
detailed recommendation on how to make the international joint venture a success. It has
been ascertained that some of the crucial factors resulting in the failure includes local market
realities, cultural differences and vital interest overlapping, which should be addressed by
developing appropriate strategies.

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hardware-partner-lowes-20160908-grbn6k.

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"Woolworths Stumbles On Lowe's Hurdle In Masters Sale". 2016. ABC News. Accessed
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