Innovation and growth are areas that most businesses focus on when they are formulating their plans and objectives. For firms that want to enhance their competitive advantage, they look out for business opportunities that will enable them access resources and skills that are not found within their organizations with the aim of increasing their profits. Companies may decide to expand their businesses locally or internationally. When they decide to expand their businesses across their national boarders, they may decide to form alliances which can be in the form of joint ventures or engage in acquisitions.
“Such alliances help the organizations acquire extra skills hence be able to minimize various business risks (Triggs & Bialek, 2002). ” Joint Ventures (JV) occur when two or more businesses decide to combine their assets and engage in productive business ventures together. Since the parties involved decide to raise capital to run the business in agreed proportions, they will share in the profits as well as the losses that the new business will incur.
Joint ventures can therefore be in the form of partnership agreements, corporations or any other form of business ownership. Multinational organizations which have business activities in most countries are usually the major targets by these companies that want to become ‘big’. This is because since they are well known, it will be easier for the expanding organizations to gain access to foreign countries. Reasons why companies engage in joint ventures There are several reasons why companies engage in Joint ventures.
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The reasons are either based on the internal needs of individual organizations or the goals they have set for themselves.
The reasons include:
• Access to financial resources Individual companies cannot fully cater for all the needs of their business and that is why they borrow loans to supplement their working capital. A company may have planned to expand and after undertaking a thorough research on new markets, they realize that they do not have enough funds to successfully complete their project.
They will therefore link with other companies, in form of joint ventures; especially multinationals because they have a wider profit base hence they are most likely to offer the required funds. Joint ventures are thus formed to distribute the operating expenses across firms because they may be too large for one company to bear.
Companies do not want to face the costs and risks that they are likely to be exposed to alone especially when the company is operating in a foreign land.
The business leaders will therefore look for other interested business partners in the region so that they can share the success of the business as well as the risks. This will make the business feel more comfortable in the area as they have other experts who are able to give their expert opinions on certain issues hence they will be able to face the various challenges as a team. Protection can also be in the form of the ability to enter new markets easily and be safeguarded against the strict policies in those countries.
Since multinational organizations are well known, the top managers are able to talk with the various state representatives and they will ease some of the policy regulations in place thus favor the existence of the Joint venture.
• Advantages of economies of scale
Through combining resources of different business entities, the upcoming enterprise will benefit because its size will increase because of the additional assets, more laborers will be hired and the management will also increase.
This will enhance the enterprises operations thus increase production as well as the output produced.
• Wider market coverage
Joint venture enhance the market cover as they are able to improve on their marketing and promotional strategies thus are able to forecast better on market trends as well as know the consumer preferences so that they can develop designs to satisfy their customers needs (Ebben & Johnson, 2005, 1253).
This is because the domestic partner has vast knowledge on business operations and various people involved therefore, it will be easier to assess the markets of their partners. Since different organizations are involved, they will all contribute on the areas that need improvement using some of the strategies that they use in their organizations and this will help the JV to perform better thus retaining and attracting other potential customers.
• Creation of stronger competitive enterprise
The top managers as well as the employees will devise new ways of improving on their strategic plans and marketing strategies as well as operations. They will also be more open to ideas and this will make the business even perform better. “Since they work as a unit, they are able to incorporate new technologies as well as experts within their system and this will aid in the production of quality products thus have an advantage over their competitors (Chiah-Liaw Petzall & Selvarajah, 2003, 253).
” In addition, if the multinational organization and the company that is considering the joint venture have intellectual property rights, they will be able to benefit more as their creative designs and products will not be used by other people. Learning from the partners is important as it enhances skill development especially when companies have a lot of experience in the type of business. They are therefore able to anticipate problems through changes in business patterns or trends hence they are able to advice their business partner’s way in advance and plan on the prevention mechanisms.
By looking at the reasons why joint ventures are formed, we identify with the need of businesses to consider JV’s as the next best business option. Satisfying company needs should not be the only thing that individual firms have to look into, they should also be able to know the factors that can hinder or promote the success of their business so that they are aware of what they are getting themselves into. They also need to look at the areas that need to be constantly improved on so that this form of business venture remains successful (Thomas, 2004, 129).
To illustrate the importance of companies engaged in joint ventures being knowledgeable of the factors that can either lead to the success or failure of their business, we will use an example of a known multinational that is engaged in such an alliance. Case study: Ninemsn Company Ninemsn is an Australian based online portal company which also serves as a website for the Nine Network an Australian television station and MSN. The company was formed in 1997 as a joint venture between PBL Media and Microsoft. The cost for the business establishment was $ 50 million after the two companies combined their assets. Also read about factors affecting globalization
Since then, the company has grown and increased its customer base as well as its operations and it has proved and shown that joint ventures can be successful. Today, it has over 8. 2million subscribers per month who log onto the website thus becoming Australia’s largest online media company. Ninemsn is headed by a great team of corporate competent leaders who have managed to propel the company in the right direction. The organization has embraced the latest technologies in place thanks to the involvement of the Microsoft experts thus it continues to improve their services in line with their client needs.
For the company, they aim to be the best in the field as well as the world and that is why they are expanding their business. In 2006, the company acquired HWW limited a content publishing company that also manages megadata for its clients who are mostly media houses. HWW has been in operation for the past 35 years and Ninemsn linked with it because it could benefit from its mobile assets. Failures associated with joint ventures Not all joint ventures are as successful as Ninemsn. This is attributed to various differences that arise in management when the different organizations share different opinions on issues.
This is attributed the fact that the two organizations have different philosophies, objectives and goals and that is why it will be hard if they want to pursue their own goals other than the common goals. “If they do not define a mechanism within which they can address the problems they face, the businesses are bound to fail (Triggs & Bialek, 2002). ” That is why once successful Joint ventures have been terminated. Other causes of failure may be due to the continual rise in the costs of the businesses to certain levels that the company starts gaining loses.
If this happens, the different parties start throwing accusing fingers on their counterparts and with time tensions build thus creation g unfavorable business environment and that is why the parties involved will opt to separate ways. Problems will also arise when there is communication inefficiency that arises when the parties do not trust each other. This is mainly attributed to the fact that one party may fear that the other company may be gaining access to the firm capabilities while they are not gaining much in return. Some companies fear the risks of potential loss of control. Read also under what circumstances should a company's management team give serious consideration
(Jones 162). This is because some companies have been used to being in control and when they engage in joint ventures, they have to share responsibilities and at times they feel like they are not being heard enough and that is why sometimes they will take charge of certain issues which in most cases is not agreeable by the other party. Factors that determine the success or failure of joint ventures Many businesses are engaging in joint ventures without been keen on the underlying objectives of the new business and that is why many of them collapse.
For this reason, it is necessary that the managers of organizations know what they can do to enhance the success of such alliances. Looking at the above causes of Joint venture failure, it is necessary to know how to handle certain problematic situations and the things that companies in joint ventures should always keep in mind. The following are some of the factors that Ninemsn as well as other multinational joint ventures have used to enhance their success and minimize the failures of JV’s. ? Starting-up and learning
When a new business is starting, it is usually faced with many hurdles because of this; the first periods of its business operations will be slow. This is usually the scenario for most joint ventures as they have to conform to the other parties’ way of operation. “Conflicts of interest might arise but the ability to sit down and address the problems in a rational manner is a proper manner is the first step of being able to cope with each other (Wong & Merrilees, 2006, 478). ” This will useful in guiding their operations during the different phases of the business cycle.
Sometimes the challenges are too complex that some business will consider withdrawing from the agreement but patience and learning new things will help the business improve in areas where it is weak. Ninemsn is a good example because when they started, they were not making the profits that they enjoy today and neither did they have the 8. 2 million clients per month visiting their site. Slowly by slowly they learnt from competitors, learn from their mistakes, worked with experts and embraced technological changes which have all contributed to their success.
The lesson other joint ventures can learn is that they do not have to succumb to the pressures when they are hardest hit but they should device ways that will enable them to survive during such trying times and learn from the experience. ? Complementary contributions by partners For a joint venture to be termed as successful, the parties involved must be able to make significant contribution to the organization. “This will definitely depend on the line of business that they are engaged in.
most contributions are made in relation to the percentage of ownership in the business operation (Reus & Ritchie, 2004). ” In the Ninemsn case, Microsoft and PBL media have a 50/50 joint venture. Therefore in case the business needs to expand may be hiring more staff or buying new equipments, the business will share the costs equally. In this way, no party will feel as if they are being pressured as they agreed in the deal. This makes them more involved in the business affairs and are more responsible.
When a certain party does not stick to their end of the deal and partially pay or not pay the amount they are obliged to, then because the other party wants the alliance to succeed because they invested a lot of money in it, they will be left to bear their costs plus those of the other party (Duncan, 2005). When such instances continue for a while, a point will reach when they will not take it anymore and this will lead to the eventual collapse of the organization. It is therefore important to pay the contributions without failure as stated in the initial agreement. ? Previous collaboration relationships
When companies; especially multinational organizations, have previously engaged in other joint venture initiatives with the same company as well as other companies, it will be easier for them to enter into such contractual alliances in the future. This is because they shared information and knew how the various businesses operate therefore they have an idea of what they are getting themselves into. “Relationships in such alliances occur via a series of stages which include searching the right partner, selecting and negotiating business terms before agreeing to operate together (Styles & Hersch, 2005, 3).
” If the previous working experiences were not pleasant or the company did not gain much from the experience, then it not worth starting something with them when there are doubts about their capabilities. Other than that, managers can tell whether a company is good from how their previous joint ventures were and still are by looking at the joint venture progress on documented literature such as reports and financial statements (Walker & Johannes, 2000).
According to our case study, when Ninemsn was being formed, PBL media looked at previous Microsoft joint ventures for example their collaboration with DreamWorks, Japan’s Softbank Corporation and also with Erickson. Because they saw that their company profits were booming therefore they were more than sure that this alliance was going to be a success. ? Personnel stability When the personnel within the joint venture are comfortable and satisfied with the way the operations are undertaken and managed, then they will be motivated to work harder to ensure that they are a success.
Such an environment encourages information sharing which in turn influences the coordination of activities. Ninemsn has invested in ensuring that their employees are well skilled through continual training on new technologies and they are always updated on the affairs of the business. “When the personnel have a negative attitude towards the business, then the output of the firm as well as the services they offer will be affected (As-Saber, Dowling & Liesch, 1998, 757). ” This will also mean that the customers will be dissatisfied and will move to their competitors.
For this reason, the, mangers have a responsibility of continually empowering their staff to perform better through training, offering constructive criticism and rewarding their efforts. ? Member motivation All the companies engaged in the joint venture need to be motivated because they are key people to the success of the business. When one party is not committed to the agreed cause, then they will not even be aware of new developments and this will leave the remaining party or parties with the responsibility of running the business alone.
That is why joint venture managers go an extra mile to organize seminars, symposiums or workshops for the different parties so that they get to relate with each other better by understanding the needs and aspirations of the other parties (Amason, Shrader & Tompson, 2006, 133). ” ? Proximity to the markets Proximity refers to how fast customers are able to access goods and services. If the time taken is too long, then the joint venture has failed as they cannot satisfy the needs of their clients and this will make them lose business to competitors.
Joint ventures therefore need to be close to their markets and even utilize the existing technologies within their systems to ensure that they are fast enough to attend to the needs of the customers. In the Ninemsn case, they have used advanced technologies thus enabling them to serve their clients faster and better. ? Professional project advisors There is a need to utilize the work done by experts who specialize in various fields as they are able to give informed opinions in various issues. Moreover they are important for the company to be able to realize their objectives and goals.
“Sometimes, there are various procedures that involve a lot of paper work and they need to hire people who will handle such matters effectively on their behalf (Verreynne & Kate, 2006, 4). ” This is because they see that such services are an extra cost to the business. Ninemsn has proved such perceptions wrong as they have hired legal practitioners to handle their legal issues and also advisors on several business matters including public relations and that is why they are still successful. Therefore, professional project advisors play an important role in supporting management in conducting their activities.
? Effective leadership Proper leadership strategies play an important role in the success of Joint ventures. The leaders in any organization need to be professionals who are committed to ensuring that they achieve their objective. “The leaders are able to instill the necessary ethical regulations on their employees as well as correct them when they go wrong (Yue & Nicholas, 2006, 127). ” They are also the people who see other business opportunities and they can be beneficial to the company, they will pursue them because they know the business will benefit.
In addition, they link the organization with important people such as the state and advisors whom the joint venture will rely on occasionally. For instance, company lawyers play an important part in safeguarding JV’s intellectual property rights. Managerial responsibilities should be shared by both parties. “For this reason, all parties should therefore participate actively and equally in board meetings especially in the initial stages. Involvement of both parties in managerial decisions enhances joint management of the JV (Contractor et al, 2002, 409).
” Top managers should also be in a position where they are able to resolve conflicts within their organizations. “This is because if they do not have a proper mechanism for solving even the simplest issues, then there is a probability that they will not be able to tackle serious problems within their organizations (Cameron & Massey, 2002). ” When the leaders of the joint venture do not know the goals on the enterprises they head or show little concern, then the businesses they head are bound to fail.
For this reason, leadership is an integral in a joint venture and the people chosen should be able to enhance the vision and mission of their core founders. ? Adequacy and flexibility of agreements Agreements generally seal the business transactions that organizations engage themselves in. joint ventures should not be rigid but should create an allowance where they are able to transact with other organizations and increase their business opportunities (Schuler, 1999, 57).
In this case study, Ninemsn is flexible when conducting its operation and when it sees that it can benefit from certain initiatives after analyzing how it will impact the business they are able to decide on what the company might need. This can be seen by them linking with the Australian Television network by offering reviews and even showing popular programs on the website. It has also linked with various local mobile companies in the provision of various internet solutions.
It has also partnered with the Australian Consolidated Press (ACP) such that it is able to provide magazine as well as newspaper article reviews, press releases and other editorials. “Depending on the business period and the prevailing market conditions, it is useful for joint ventures to consider engaging in various business agreements as they will enhance the success of the organization (Reus & Ritchie, 2004). ” Conclusion Joint ventures can be successful when the associate companies make it their duty to look into the various mentioned factors as they improve the way they operate.
Failure to address these key factors will definitely hinder the joint venture’s ability to achieve its objectives. Termination of a joint venture does not necessarily mean that the JV was a failure but in some cases the companies had achieved their goals or the circumstances of business operation had changed. Despite the problems facing joint ventures, such initiatives have revolutionalized international business by enhancing competition thus making companies more accountable and transparent in the way they handle their activities. References
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