Managing International Joint Ventures (IJVs)
11 important questions on Managing International Joint Ventures (IJVs)
Why is the mainmotive to form an IJV to getaccesstoresourcesofthelocalpartner?
›The local partner may contribute resources that will increase the likelihood of successfully entering the target country e.g.
•knowledge on local customer behavior and preferences
•knowledge on legal aspects, labor relations etc.
•assets like local brands, real estate, distribution network that are not on sale on the local market
•a good partner often has a network of political and personal connections
›Involves less investment and risk than Wholly-Owned Subsidiaries (WOS).
Why are IJV more challenging to manage than other types of strategic alliances?
›Endogenous success factors legal independence of parent firms create controlproblems, cultural differences -Manageable
›Exogenoussuccessfactors Institutional and economiccontext in whichthe IJV islocated – Out ofmanagerialscope
How do exogeneous factors influence IJV?
›Patent duration differs between countries (e.g. 5 years in Latin America -> 20 years in Europe)
›Some countries require firms to license various patented technologies to local firms
›Scope of patent protection differs: principle of ‘first to invent’ (U.S.) vs. ‘first to file’ (most other countries)
›Cost of patents (highest in the world in Japan due to translation and attorney costs)
›For alliances with firms from countries with a weak intellectual property regime more equity-based alliances might be chosen to protect against appropriability hazards
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What are common mistakes made in IJVs in China?
•Resolving a joint venture dispute usually most be done in China. Foreign partners often provide in the JV agreement, however, that litigation or arbitration must take place outside of China (i.e. home country of the foreign partner).
•Foreign companies often rely on a majority share interest to control the joint venture, rather than actually having effective control via the right to appoint the representative director and the general manager.
•Failing to carefully monitor capital contributions and the use of contributions to capital, assuming that accounting reports would accurately show the money contributed.
What are some practicalrulesformanaging IJV?
›Manage each parent separately
•All decisions requiring an involvement from both partners must be discussed and settled separately with each partner firm before they are officially raised in joint meetings
›Choose senior managers wisely
•Managers of a IJV must be chosen for his or her skills as a diplomat and independence of mind rather than being a “faithful servant” to one parent company.
›Don’t try to dominate the local partner Appoint locals as senior managers. Overly relying on expatriates implicitly denies any value to the contribution of the local partner
For which resources and capabilities are emerging market firms specifically
looking when they form an alliance with a foreign partner? Hitt et al. (2000)
they form an alliance with a foreign partner?
-Financial assets
-Technical capabilities
-Intangible assets
-Willingness to share expertise
-Capability for quality
-Complementary capabilities
-Managerial capabilities
Why might the oil industry not be an ideal context to investigate the effects of resource complementarity on Joint Venture performance? Choi & Beamish (2013)
How is JV performance measured in Choi & Beamish’ study? Is this an appropriate way to measure JV performance? Choi & Beamish (2013)
- asked only 1 manager--> common measure bias
In which respect is the Star Alliance not only a network of connecting flights but a network organization?
joint marketing campaigns (balance the brand of particular airline “Nonstop You” and global branding of alliance “the way the earth connects”
--> More knowledge sharing and relation specific investments.
Created a corporate identity and a network identity--> they become an organization.
Which additional managerial challenges arise from the fact that the Star Alliance service is “only” the star alliance Network Administrative Organization?
Many different management teams within the joint venture, who also contribute in different ways to the network. Airlines come from different countries.
Created this separate organization--> management of the alliances.
Lacking decisions-making authority
What are the possible advantages and disadvantages of a strategic shift in the Star Alliance towards (more) merger & acquisition?
Advantage: less complexity, share costs/ experiences, more connected, faster communication, greater customer value,
Disadvantage: expensive, locked, self-interest, monopoly, hard to coordinate, integration issues when merge with firms without the alliances.
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