Analysis of International Joint Ventures: Successes and Failures

This report provides a comprehensive analysis of international joint ventures (IJVs) as a strategic market entry approach for multinational enterprises (MNEs). It begins by defining IJVs and outlining the reasons for their formation, including risk sharing, economies of scale, market access, geographical constraints, funding constraints, and acquisition barriers. The report then presents case studies of both successful and failed IJVs, examining the Maersk-IBM Blockchain JV and the Mubadala Investment Company subsidiary Nova Chemicals and Borealis JV as examples of success, and the Sony-Ericsson and Tiffany & Co. with Swatch Group joint ventures as failures. Through these case studies, the report identifies key factors contributing to IJV success and failure, such as cultural differences, organizational structures, strategic planning, and the impact of parent company dynamics. The analysis underscores the importance of understanding market dynamics and the challenges of managing international partnerships to enhance the likelihood of successful IJV outcomes.

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International Joint Ventures success and failures
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Executive Summary
Joint ventures are a preferred market entry strategy in the international arena by many
companies. In international joint venture (IJV) two companies partners with one another,
exploring international trade undertaking full responsibilities in cross-border business
transactions. In the current report reasons for forming IJVs as a means of overseas expansion for
MNEs and two examples, one of a successful joint venture and other a failed joint venture. An
analysis of the reason for the failed joint venture has been analyzed in order to develop
recommendations for the IJVs to expand successfully.
MNEs are usually incorporated within a single country and produce goods or services in
varied countries. In an IJV, an MNE might enter into a contractual agreement, expressing joint
property interests to share profits, losses, and management control. Most MNEs operate in
foreign markets by importing and exporting strategy. There are examples of various successful
joint ventures, such as the Maersk-IBM Blockchain JV, SIA Engineering Company and Stratasys
forming From Additive Manufacturing Joint Venture, German auto rivals BMW and Daimler for
their mobility venture, French oil Total SA forming JV with Borealis Ag and NOVA Chemicals
Corp and so on. Most IJVs fail and there are multiple reasons attributed to such failures. One of
the major IJV failures is that of Sony and Ericsson that lasted from 2001 till 2012. Some failures
in businesses are inevitable as markets do not often materialize as expected. International joint
ventures are not immune to market failures or other associated failures in businesses. Tackling
these barriers can lead to the establishment of a successful joint venture in entering a new market
or otherwise it can result in failure. However, such IJVs need to follow certain recommendations
to prevent failure.

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Introduction
Joint ventures are a preferred market entry strategy in the international arena by many companies
1. In international joint venture (IJV) two companies partners with one another, exploring
international trade undertaking full responsibilities in cross-border business transactions. An
international joint venture is a distinct legal entity where two partners participate, who are
legally, economically and geographically independent of one another. In IJV, international
investors reduce risks of business acquisition by entering into a joint venture. The core aim in an
IJV is limiting the risk exposure by performing due diligence on the foreign country. Companies
enter into strategic alliance with partnering companies that enable them to gain competitive
advantages2. A prominent example includes Qualcomm and USI entering into IJV for setting up
the Semiconductor Module factory in Brazil. Tiffany & Co jewelry chain forming IJV with
Swatch to sell watches. Various IJVs has resulted in failures whereas some IJVs perform
distinctively well. In the current report reasons for forming IJVs as a means of overseas
expansion for MNEs and two examples, one of a successful joint venture and other a failed joint
venture. An analysis of the reason for the failed joint venture has been analyzed in order to
develop recommendations for the IJVs to expand successfully.
Reasons for Internationalizing
A multinational enterprise (MNE) is corporations that control the production of goods or services
in another country apart from its own home country. MNEs are usually incorporated within a
single country and produce goods or services in varied countries 3. In an IJV, an MNE might
1 Peter Killing, Strategies for joint venture success (RLE International Business, p. 13
2 Byung Il Park, ‘Knowledge transfer capacity of multinational enterprises and technology
acquisition in international joint ventures’, p. 80
3 Jean-Paul Roy, and Christine Oliver. ‘International joint venture partner selection: The role of
the host-country legal environment’, p. 800

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enter into a contractual agreement, expressing joint property interests to share profits, losses, and
management control. Most MNEs operate in foreign markets by importing and exporting
strategy. Implying an MNE from the UK might sell its products in Australia through MNE mode,
by assembling parts or manufacturing at Singapore. The Company might find Australia's market
attractive but is able to get considerable gains from the sales of the product or service only.
Various MNEs considering entering a foreign country by way of international joint ventures
(IJVs) after operating for a considerable period through the MNE mode4. There are several
reasons for forming an IJV after operating through the MNE mode.
 Sharing Risks: One of the primary reasons for forming IJV is sharing of risks. In capital
intensive industries requiring high amounts of investments to set up plant and machinery,
with considerable labor costs, IJV is considered the best alternative. Through IJV the
risks arising from the likelihood of a particular product is shared with the partner.
Automobile companies require high capital investments; hence often MNEs enter through
IJV mode.
 Economies of Scale: IJV allows MNEs to compete on a global scale by balancing costs
through economies of scale. As an MNE it produces goods at its home country or at any
other cost-efficient location, however, with an IJV, it is able to produce products within
the same country where it will sell. It is able to enjoy economies of scale especially in
industries that have high costs.
 Market Access: Various underdeveloped or developing countries offer constraints to
MNEs in understanding their customer types and relationship with customers. Moreover,
in various developing markets people are often resistant to international brands; with IJV
4 Gokhan Ertug, Ilya RP Cuypers, Niels G. Noorderhaven, and Ben M. Bensaou, ‘Trust between
international joint venture partners: Effects of home countries’, p. 270

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such companies can gain immediate access to their market. While MNE involves
engaging in contractual modes of selling, IJV allows direct access to distribution
channels. The company can easily identify new distribution channels and potential
customer bases, which would have been extremely difficult otherwise. Unilever IJV with
Hindustan Lever Limited in India offered Unilever instant access to Indian markets.
 Geographical Constraints: In an attractive business opportunity in foreign soil, IJV can
provide an MNE ease of presence in such geographical regions. Penetrating an unknown
geographical location can bring immense risks to the foreign investment portfolio of the
company. This may be due to lack of knowledge, experience and local barriers prevalent
towards foreign-owned companies.
 Funding Constraints: Setting up operations in a foreign land can bring immense upfront
expenditure. At such instances finding an appropriate joint venture partner can provide
necessary financing and credibility.
 Acquisition Barriers: At various times an MNE is unable to acquire another company due
to factors such as costs, geographical restrictions, size or legal barriers. At such instances
partnering with IJV offers a less expensive and less risky option as against complete
acquisition5. An MNE might find a particular market attractive but returns from such a
market might not be instantaneous, during such a stage IJV is considered to be the best
alternative.
5 Jing Li, Changhui Zhou, and Edward J. Zajac, ‘Control, collaboration, and productivity in
international joint ventures: Theory and evidence, p. 870

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Case Study Approach
Successful IJV
There are examples of various successful joint ventures, such as the Maersk-IBM Blockchain JV,
SIA Engineering Company and Stratasys forming From Additive Manufacturing Joint Venture,
German auto rivals BMW and Daimler for their mobility venture, French oil Total SA forming
JV with Borealis Ag and NOVA Chemicals Corp and so on6. Here the successful IJV of
Mubadala Investment Company subsidiary Nova Chemicals and Borealis along with France's
Total has been examined. The companies formed JV to develop $1.7 billion petrochemicals
facility in Texas, where Total will have the major 50% stake with the remainder being owned by
Austria's companies Novalis Holdings. The IJV will aim to cater to cheap US shale gas. It is an
example of the successful international joint venture, where companies from two different
countries came together to set up a facility in Texas, US.
Unsuccessful IJV
Most IJVs fail and there are multiple reasons attributed to such failures. One of the major IJV
failures is that of Sony and Ericsson that lasted from 2001 till 2012. Some failures in businesses
are inevitable as markets do not often materialize as expected. International joint ventures are not
immune to market failures or other associated failures in businesses7. Verizon JV of video
streaming with Redbox failed to gain as much attraction as Netflix. Another example of a failed
JV is Iridium's failure, which was a 19-partner satellite phone JV which collapsed with
bankruptcy after excessive capital expenses, poor commercial appeal and bug-prone technology.
6 Jennifer Gnana, ‘Nova Chemicals and Borealis finalize $ 1.7 billion Texas chemicals joint
venture with Total.’
7 Hong Ren, Barbara Gray, and Kwangho Kim, ‘Performance of international joint ventures:
what factors really make a difference and how?.’, p. 820

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In the current case analysis, Tiffany & CO jewelry chain joint venture failure with Swatch Group
is discussed. In this failed JV, Tiffany & Co was asked to pay $448m8. Swatch is the world’s
biggest watchmaker; it entered into JV with Tiffany in 2007 to make watches together with the
brand. Swatch canceled cooperation with Tiffany in 2011 when the dispute started, as Tiffany
was accused of blocking and delaying their venture called the Tiffany Watch Co.
Analysis
International joint ventures have been popular institution forms selected by MNEs, such that they
can take maximum possible advantages from a foreign country9. Partnering with a foreign
venture allows transfer of knowledge and technology skills transfers, it creates employment
opportunities as well in the local country. A foreign company is not able to directly establish its
own branch straightaway in a local market, hence to overcome this barrier a foreign company
merges with a local company. Foreign companies undertake tie-up with a local company in order
to create a legal entity for sharing ownership, profits or loss and other benefits that arise from the
business. Though there is a strong understanding between companies, some end up in failures.
The high rates of failures are attributed to differences in cultures, organizing and strategic
planning. One of the primary reasons attributed to failures in JV is due to the presence of two
parents organizations10. It has been reported that almost 47% firms have more than three parent
firms 11. Though the experience of the parent company plays a role in decision-making, yet
8 BBC News, ‘Tiffany & Co ordered to pay Swatch over failed venture’
9 Deepak K. Datta, Martina Musteen, and Pol Herrmann, ‘Board characteristics, managerial
incentives, and the choice between foreign acquisitions and international joint ventures.’ p. 930
10 Aimin Yan, and Yadong Luo, ‘International Joint Ventures: Theory and Practice: Theory and
Practice, p. 200
11 Eric Er Fang, and Shaoming Zou, ‘Antecedents and consequences of marketing dynamic
capabilities in international joint ventures’, p. 750

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mutual understanding is considered to be important to cope with such relationships. Water Street
Partner's research conducted on JV performance reveals that almost half of JV fails.
Examining the above failed JV of Tiffany and Swatch, it can be said that their JV was
consistently underperforming against expectations. While Swatch Group set high expectations to
manufacture watches, tiffany continually failed to depict its performance. Tiffany is more
interested in its jewelry business, which is the reason it constantly could not match up to
expectations. Swatch, therefore, ended the JV in order to end further losses from taking place.
Swatch felt it was losing out on the well-established brand name that it has built over the years.
Swatch did not wait for the JV to come to failure; however, there was a lawsuit on Tiffany,
whereby it was asked to pay $9m to pay for Swatch fees. There was a series of lawsuits that were
filled by Swatch in order to terminate their JV.
Often JVs failure is inevitable in business as new technologies often do not work. Swatch was
seeing its market for jewelry watches not materializing. At the time the JV was entered upon the
changing times reduced the importance of watches. The usage of mobile phones as an alternative
of watches was emerging that led to gradually diminishing market share for all watch companies.
Demand for watches gradually went down, which further made Swatch to decide upon closing
their 20 year JV at that moment as they were not confident regarding business growth and
development.
On the other hand, the success of Nova Chemicals and Borealis JV with Texas Chemicals and
Total can be attributed to the high demand in polyethylene. The JV is aimed at enjoying the
boom in cheap US shale gas. The project though is aimed to start-up in the year 2020 but is an
ideal example of a successful JV. It is aimed at the creation of 1,500 jobs when the peak

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engineering activities will take place. The JV is aimed at a high-profit generation for all the
companies that are involved in the deal.
Key factors determining the success of an IJV are, prioritizing based on cultural or local
characteristics, performance-based human resource development, quality performance,
competency based training, adaptation, and flexibility. Most important factors amongst all
considerations are cooperation between parent organizations12. Governance, equity sharing and
political risks in the host country are some factors that determine the success of IJVs. In the
failed JV case where Swatch withdrew from JV with Tiffany, there was a lack of cooperation.
Both the parent companies looked at one another having a lower brand name than theirs. The
Watch Company, which was their JV was wholly owned by the Swatch Group. Tiffany was
participating in the watch company with only one seat on the board of five directors and in
before-tax profits. Swatch had failed to provide Tiffany any rights with respect to product-
designs or brand management. Though both the companies joined to hand, they were a sense of
complex that deterred them in building a brand together. Swatch's sense of self-worth devalued
Tiffany's ability. Similarly, Tiffany felt their brand name was working for Swatch in developing
watches that led to their failure.
The success of NOVA Chemicals, Borealis and Total JV was aimed for the first at meeting
global demand for polyethylene. They reached the final decision in late 2017 by signing of the
contract. Their inter-dependence on one another is the key success factor. The JV expects to
create strong integration in the value chain and provide a competitive export market access in
meeting the global demand for PE. Each parent company took this opportunity to contribute their
expertise and skill set in setting up of a new and competent company. It is aimed at cost-
12 Sea‐Jin Chang, Jaiho Chung, and Jon Jungbien Moon, ‘When do wholly owned subsidiaries
perform better than joint ventures?.’ , p. 320

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effectiveness as it will be developed on a large scale basis. The relationship amongst parent
companies is the key value add providing success to IJVs.
Conclusion and Recommendations
International Joint Ventures are formed with the aim of undertaking high levels of benefits from
the foreign country. While IJVs are entered into for the sole purpose of making profits and
getting first-hand knowledge of the host country, often it results in failures. The failures of IJVs
can be attributed to the failure in their ability to partner with one another. Differences in cultures
and decision-making strategies cause the primary disparities amongst the participating
companies to undertake a coordinated decision. While the foreign country undertakes some form
of decision, the other country considers another type of decision to be pertinent in nature. The
counterparts should not only share profits or losses and resources but they need to coordinate in
terms of technologies, strategies, operations, knowledge, trust from foreign counterparts. Barriers
in cultures, managerial inequalities, lack in communication, political barriers and lack of
knowledge or skills, need to be overcome. Tackling these barriers can lead to the establishment
of a successful joint venture in entering a new market or otherwise it can result in failure.
However, such IJVs need to follow certain recommendations to prevent failure. Some of the
recommendations are;
 IJVs need to evaluate partnering firm's capability on technological skills and knowledge.
Such an evaluation will allow partnering with a suitable firm.
 Foreign Companies entering into an IJVs needs to evaluate demand for a particular
product and undertake an extensive analysis of the product life cycle in the new market.

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 Companies entering into an IJV needs to evaluate the return on investment (ROI) and
payback period for their capital invested. In order to do so, they need to undertake a first-
hand evaluation of data from the market they wish to enter.
 Companies planning to undertake investments in IJV mode needs to evaluate general and
product-specific regulations prevalent in the targeted country. This will assist them in
preventing unnecessary harassment of investing first and then withdrawing subsequently.

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Bibliography
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Datta, Deepak K., Martina Musteen, and Pol Herrmann. "Board characteristics, managerial
incentives, and the choice between foreign acquisitions and international joint
ventures." Journal of Management 35, no. 4 (2009): 928-953.
Ertug, Gokhan, Ilya RP Cuypers, Niels G. Noorderhaven, and Ben M. Bensaou. "Trust between
international joint venture partners: Effects of home countries." Journal of International
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Gnana, Jennifer. “Nova Chemicals and Borealis finalise $ 1.7 billion Texas chemicals joint
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