MODES OF ENTRY INTO INTERNATIONAL MARKETS:Drivers behind successful joint ventures

International Marketing MKT630

Lesson # 27

MODES OF ENTRY INTO INTERNATIONAL MARKETS

Managing Joint Ventures

As there are good business and accounting reasons to create a joint venture (JV) with a company that

has complementary capabilities and resources, such as distribution channels, technology, or finance,

joint ventures are becoming an increasingly common way for companies to form strategic alliances. In a

joint venture, two or more "parent" companies agree to share capital, technology, human resources, risks

and rewards in a formation of a new entity under shared control.

Important Factors to be Considered Before a Joint Venture is Formed

screening of prospective partners

joint development of a detailed business plan and shortlisting a set of prospective partners based

on their contribution to developing a business plan

due diligence - checking the credentials of the other party ("trust and verify" - trust the

information you receive from from the prospective partner, but it's good business practice to

verify the facts through interviews with third parties)

development of an exit strategy and terms of dissolution of the joint venture

most appropriate structure (e.g. most joint ventures involving fast growing companies are

structured as strategic corporate partnerships)

availability of appreciated or depreciated property being contributed to the joint venture; by

misunderstanding the significance of appreciated property, companies can fundamentally

weaken the economics of the deal for themselves and their partners.

special allocations of income, gain, loss or deduction to be made among the partners

compensation to the members that provide services

Joint venture decay and failure:

Joint ventures seem to have a life cycle

At a certain point in the life span of the joint venture, the high level of mutual interest which

prevailed at the time of its formation grows weaker

There are several principal causes of failure or difficulty in joint venture partnerships

the failure of strategic vision

the failure to evaluate the intentions and capabilities of the local partner

a classic error is made in the choice of a distributor

believing gabout the partner/s without seeing

failure to understand the strategic logic of one's own partner

haste in negotiation

lack of organizational support for the JV

staff not prepared to deal with the political and cultural complexity of the local government

Drivers behind successful joint ventures:

Pick the right partners

Establish clear objectives from the beginning

International Marketing MKT630

Bridge cultural gaps

Top management commitment and respect

Incremental approach works best

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