Joint Ventures in International Business
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Joint Ventures in International Business
Today, every corporation in the world is thinking about going global and there is a significant surge in international business. Once a firm decides to expand operations, they have to implement various strategies to ensure they remain relevant and functional in the long-term. Firms have a category of approaches to select, including establishing joint ventures overseas, outsourcing international distribution, and establishing branches in foreign locations. Each approach has distinct benefits and risks that are grounded on factors like type of imports and exports, currency, market-related events, and the cultural environment of different nations and locations. Therefore, organizations have to make informed decisions by assessing resource availability and the level of risk they are willing to incur.
Joint Ventures
Indeed, the ideal strategy the company should integrate is forming an international joint venture with a firm operating in the target market (Nippa & Reuer, 2019). After identifying a partner, the company has to assess the operating environment and learn how business will be conducted. What does it take to be successful? How should the firm integrate distribution, address currency risks, or plan financial operations? Most importantly, the company should also know their partner comprehensively and understand how to terminate the alliance if it’s unsuccessful. Further, they should assess the political risks and predispositions related to business disruption.
An international joint venture will help the company circumvent the risks associated with establishing a successful marketing or manufacturing presence overseas. A reliable partner will avoid critical information like government operations, distribution patterns, regulations, and internal market dynamics (Parameswar et al., 2018). The knowledge is invaluable for the company as it’s venturing into a relatively unfamiliar territory. Notably, some nations like China only allow foreign investors to enter the market through joint ventures, excluding special circumstances. Therefore, creating a joint venture with existing firms is the ideal strategy for the company, as it helps in sharing risks and maneuvering uncertainties in unfamiliar markets.
Minimizing Risks and Taxes
Creating a joint venture is the ideal entry strategy for international business, particularly for firms that need to reduce operational risks and uncertainties. A local partner will help the company reduce the learning curve and share risks with a partner that shares a similar vision. Most firms prefer to implement the joint venture approach in international business to ensure they comply with various federal regulations overseas. The approach is also safer than an independent investment as it protects the business adverse policies by the unproven host. Partnerships also help in managing taxes by ensuring corporate income crosses few borders.
Managing Resources
Venturing into foreign markets independently would be utterly expensive for the company, not forgetting the risks and uncertainties associated with the expansion. Therefore, a joint venture is the ideal entry strategy as it transfers risks stemming from adverse federal policies that can affect components like technology, transfer of capital, products, and human resources. Once the initial phase is complete, the company can then choose the perfect business strategy for long-term business.
Conclusion
Regardless of the approach taken, expanding to international markets is challenging and costly, but it’s financially worthy. Seeking to venture in global markets will secure the company’s future, an important aspect of contemporary business. Implementing the joint venture strategy will increase the chances of success in foreign markets by minimizing risks, managing taxes, and complying with federal regulations. After the learning curve is complete, the organization can then decide on the structure for long-term business.
References
Nippa, M., & Reuer, J. (2019). On the future of international joint venture research. Journal of International Business Studies, 50, 555-597.
Parameswar, N., Dhir, S., & Ongsakul, V. (2018). Purpose of international joint venture and interaction post termination . Journal of Global Business Advancement, 11(6), 687-705.