What Are the Advantages, Disadvantages and Structure of an International Joint Venture?
International joint ventures (IJVs), the second type of equity based cross-border alliance, have experienced tremendous growth during the last two decades as well. They will continue to represent a major means of global expansion for MNEs. In emerging economies such as China they represent the dominating operation mode for MNEs’ market entry.
According to a well-known definition by Shenkar and Zeira an IJV is: A separate legal organization entity representing the partial holdings of two or more parent firms, in which the headquarters of at least one is located outside the country of operation of the joint venture. This entity is subject to the joint control of its parent firms, each of which is economically and legally independent of the other. An IJV can have two or more parent companies. Many IJVs, however, involve two parent companies.
What Are the Advantages, Disadvantages and Structure of an International Joint Venture? Essay Example
Problems will get even more complex with more than two partners. The equity division between the parent companies of the joint venture may differ. In some cases the ratio is 50:50, in others the dominance of one partner becomes more obvious with ratios of 51:49 or through various other combinations. This, of course, has implications for the control of the IJV. In contrast to M&As, the parent companies of an IJV keep their legal identity and an additional new legal entity representing the IJV is established. Possible additional relational interfaces
Relational interfaces Key Advantages of International Joint Ventures •Penetrating protected markets •Lowering production costs •Sharing risks and high R&D costs •Gaining access to marketing and distribution channels •Gaining access to the partner’s know-how In addition to these key advantages, speed, access, sharing of resources and the leveraging of underutilized resources, high profits, back end income, low or no risk opportunities and massive leverage are the other advantages that of the international joint ventures.
The disadvantages of international joint ventures are the possibility of being ripped off or disappointed by unscrupulous and unprofessional IJV partners, and hurting your reputation and/or customers and associates by associating with the wrong people, even unknowingly. Q#7) : How should a company help prepare an employee for an expatriate assignment?
Once an employee has been selected for an expatriate position, pre-departure training is considered to be the next critical step in attempting to ensure the expatriate’s effectiveness and success abroad, particularly where the destination country is considered culturally tough. Effective cultural training, it is advocated, assists individuals to adjust more rapidly to the new culture. As Earley points out “ A major objective of intercultural training is to help people to cope with un expected events in a new culture.
Companies should help expatriates by giving several types of training. These are cultural awareness programs, preliminary visits, language training and practical assistance. First of all, it is generally accepted that, to be affective, the expatriate employee must adapt to and not feel isolated from the host country. A well-designed, cultural awareness training program can be extremely beneficial, as it seeks to foster an appreciation of the host country’s culture so that expatriates can behave accordingly, or at least develop appropriate coping patterns.
Without an understanding (or at least acceptance) of the host country culture in such a situation, the expatriate is likely to face some difficulty during the international assignment. Therefore, cultural awareness training remains the most common form of pre-departure training. Cross cultural training, in essence, helps the expatriate understand the culture of the target destination and provides them with coping strategies to support them when feeling vulnerable.
Although the content of a cross cultural training course will vary according to who is receiving it (i. e. employee, spouse or children) they all benefit the participant by highlighting the cross cultural differences they will face in their new office and/or lifestyle. Secondly, one technique useful in orienting international employees is to send them on a preliminary trip to the host country. A well-planned trip overseas for the candidate and spouse provides a preview that allows them to asses their suitability for and interest in the assignment.
Such a trip also serves to introduce expatriate candidates to the business context in the host location and helps encourage more informed pre-departure preparation. When used as part of a pre-departure training program, visits to the host location can assist in the initial adjustment process. Language training is a seemingly obvious, desirable component of a pre-departure program. Clearly the ability to speak a foreign language can improve the expatriate’s effectiveness and negotiating ability.
It can improve managers’ access to information regarding the host country’s economy, government and market. Knowledge of the host-country language can assist expatriates and family members gain access to new social support structures outside of work and the expatriate community. Language skills are therefore important in terms of task performance and cultural adjustment. Its continued omission from pre-departure training can be partly explained by the length of ime it takes to acquire even rudimentary level of language competence.
Hiring language competent staff to enlarge the ‘language pool’ from which potential expatriates may be drawn is one answer, but its success depends on up-to-date information being kept on all employees, and frequent language auditing to see whether language skills are maintained. Another component of a pre-departure training program is that providing information that assists in relocation.
Practical assistance makes an important contribution toward the adaptation of the expatriate and his or her family to their new environment. Being left to fend for oneself mat result in a negative response toward the host country’s culture, and/or contribute to a perceived violation of the psychological contract. Many multinationals now take advantage of relocation specialists to provide this practical assistance, for example, in finding suitable accommodation and schools.
Further language training for the expatriate and family could be provided, particularly if such training was not possible before departure. Usually, during the assignment, host country HR staff will organize any further orientation programs and language training. However, it is important that corporate HRM staff act as a liaison to the sending line manager as well as the HR department in the foreign location to ensure that practical assistance is provided.
Consequently, to make expatriates more successful in host county, companies should provide cross cultural trainings for cultural awareness, preliminary visits, language trainings and practical assistances . If global companies are to truly maximise their potential abroad these must become a mandatory element of expatriate relocation assignments. To ignore this would mean a continuation of failures, loss of potential growth abroad and a staff base that lacks international cultural competencies.