Much of the world's international business activity involves IJVs, in which at least one parent is headquartered outside the venture's country of operation. IJVs require unique controls; ignoring these specific control requisites can limit the parent company's abifity to efficiently use its resources, coordinate its activities, and implement its strategy.
The term IJV control can be defined, according to Schaan, as “the process through which a parent company ensures that the way a joint venture is managed conforms to its own interest.”3 Most of a firm's objectives can be achieved by careful attention to control features at the outset of the joint venture, such as the choice of a partner, the establishment of a strategic fit, and the design of the IJV organization.
The most important single factor determining 1W success or failure is the choice of a partner. Most problems with IJVs involve the local partner, especially in less developed countries. In spite of this fact, many firms rush the process of partner selection because they are anxious to “get on the bandwagon”: man attractive market.3' In this process, it is vital to establish whether the partners' strategic goals are compatible (discussed in the previous chapter). The strategic context and the competitive environment of the proposed IJV and the parent firm will determine the relative importance of the criteria used to select a partner JJV performance is also a function of the general fit between the international strategies of the parents, the IJV strategy, and the specific performance goals that the parents adopt. Research has shown that, to facilitate this fit, the partner selection process must determine the specific task-related skills and sources needed from a partner as well as the relative priority of those needs.M To do this, managers must analyze their own firm and pinpoint any areas of weakness in task-related skills and resources that can be overcome with the help of the IJV partner.
Organizational design is another major mechanism for factoring in a means of control when an 1W is started. Beamish et al. discuss the important issue of the strategic freedom of an 1W. This refers to the relative amount of decision-making power that a joint venture will have, compared with the parents, in choosing suppliers, product lines, customers, and so on?5 It is also crucial to consider beforehand the relative management roles each parent wifi play in the 1W because such decisions result in varying levels of control for different parties- An 1W is usually easier to manage if one parent plays a dominant role and has more decision-making responsibility than the other in daily operations; alternatively, it is easier to manage an lJV if the local general manager has considerable management control, keeping both parents out of most of the daily operations?
International joint ventures are like a marriage - the more issues that can be settled before the merger, the less likely it wifi be to break up. Control over the stability and the success of the IJV can be largely built into the initial agreement between the partners. The contract can specify who has what responsibilities and rights in a variety of circumstances, such as the contractual links of the I]V with the parents, the capitalization, and the rights and obligations regarding intellectual property. Exhibit 7-5 lists some of the major areas of allocation of responsibility that can be delineated in the joint venture agreement to lessen the potential for strife later.
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