At a much higher level of investment and risk (though usually less risk than a wholly owned plant), joint ventures present considerable opportunities unattainable through other strategies. A joint venture involves an agreement by two or more companies to produce a product or service together In an IJV ownership is shared, typically by an Ml'JC and a local partner, through agreed-upon proportions of equity. This strategy facilitates an MNC's rapid entry into new markets by means of an already established partner who has local contacts and familiarity with local operations. IJVs are a common strategy for corporate growth around the world; they also are a means to overcome trade barriers, to achieve significant economies of scale for development of a strong competitive position, to secure access to additional raw materials, to acquire managerial and technological skills, and to spread the risk associated with operating in a foreign environment. Not surprisingly, larger companies are more inclined to take a high equity stake in the ijv engage in global industries, and are less vulnerable to the risk conditions in the host country. The joint venture reduces the risks of expropriation and harassment by the host country; indeed, it. may be the only means of entry into certain countries, like Mexico and Japan, that stipulate proportions of local ownership and local participation.
In recent years, lJVs have made up about 20 percent of direct investments by MNCs in other countries, including such deals as the robotics venture between Fujitsu and General Electric and the fiber-optic venture between Siemens AG. and Corning Glass Works. Many companies have set up joint ventures with European companies to gain the status of an “insider” in the European Common Market. Most of these alliances are not just tools of convenience but are important - perhaps critical - means to compete in the global arena. To compete globally, firms have to incur, and defray, immense fixed costs, and they need partners to help them in this.
Sometimes countries themselves need such alliances to improve economic conditions: the Commonwealth of Independent States (CIS) has recently opened its doors to joint ventures, seeking an infusion of capital and management expertise. Philip Morris, discussed earlier, entered a joint venture with Artovaz, a Russian auto manufacturer, to produce Marlboro cigarettes at a converted plant in Samara.
International joint ventures are one of many forms of strategic global alliances that are further discussed in the next chapter.
In a joint venture, the level of relative ownership and specific contributions must be worked out by the partners. The partners must share management and decision making for a successful alliance. The company seeking such a venture must maintain sufficient control, however, because without adequate control, the company's managers may be unable to implement their desired strategies. Initial partner selection and the development of a mutually beneficial working agreement are therefore critical to the success of a joint venture. In addition, managers must ascertain that there will be enough of a “fit” between the partners' objectives, strategies, and resources - financial, human, and technological - to make the venture work. Unfortunately, too often the need for preparation and cooperation is given insufficient attention, resulting in many such marriages ending in divorce. In fact, about 60 percent of IJVs fail, usually because of ineffective managerial decisions regarding the type of it'?, its scope, duration and administration, as well as careless partner selection.6' The list of cross-cultural disappointments is getting longer - Chrysler-Mitsubishi and Fiat-Nissan have, according to Business Week, “produced as much rancor as rewards.” After years of arguments, GM pulled out of its operations with Korea's Daewoo Motors, citing insufficient care given to their relationship.
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