Why Joint Ventures Die

1. Why Joint Ventures Die Joint ventures are fragile as they often are caught in the conflict between partners. Here is the review of the fundamental conditions that give rise to the alliances in the first place.

2. Motivation for Joint Ventures • A JV occurs when two or more firms pool a portion of their resources within a common legal organization. • T theory of JV must explain why a particular mode of transacting is chosen over oth3er alternatives such as acquisition, supply contract, licensing, etc.

3. Fear • Whenever two firms transact on a long-term basis, problems arise from the difficulty of settling future prices, guaranteeing quality and delivery, and safeguarding the technological and strategic decisions. • No matter how well contracts are designed, they may fail to provide effective guarantees. • A JV is often seen as the best alternative as it requires mutual investment and provides incentives for both parties to perform.

4. Profit • Increased profitability can be gained by one of two ways: first, between firms in an oligopoly, JV can stabilize competition and improve industry returns. • Fear and profit are not mutually exclusive, but if the corporation entails the revelation of secrets, technology know-how’s, and sharing of brand labels, fear of the misuse of these assets will drive the partners to seek ways to enforce compliance with the agreement.

5. Organizational Learning • It is important to balance the perspective by considering the role of joint ventures in creating and transferring knowledge among firms. • An example was the1990s joint venture between Honeywell and Ericsson to develop the communications which for the U.S. market. • Knowledge can be transferred by other mans than a joint venture but one reason why joint ventures are commonly used among firms in international markets is to exchange the distinctive managerial skills of countries.

6. Causes of Termination of Joint Ventures • Forms of termination : • complete dissolution of the venture • the acquisition of on partner’s share by the other • one or both shares by a third party. • Dissolution may represent a business failure on one hand, but can also reflect a fundamental conflict among the partners. • Acquisitions suggest that one of the parties, or an outside party, places a higher value on the venture than the other does, regardless of the reasons for the differences in valuation.

7. Lessons for the Design of joint Ventures • An understanding of the reasons why joint ventures end provides rules on how they should be designed. • A joint venture is difficult for one simple reason: it is under the ownership of more than one firm. • The following considerations should be taken in order to design the joint venture.

8. Design the Venture to Guarantee Your Sleep • Participants in every venture worry about the loss of control over technologies and brand labels. • Since you believe that the technology leakage will happen anyway, so you should make some money from your technology rather than wait until it happens, and you get nothing. • questionable quality of a joint venture’s products can cause serious damage to brand reputations. In order to avoid the problem of the damage of brand reputation, some ventures decide not to share or create a common brand label.

9. Do not Burden the Joint Venture • Cooperative arrangements frequently lead to each member trying to do the least amount of work. • Design the venture so that both partners are equally interested in the profitability of the concern.

10. Choose the Right Benchmark for Evaluation • Joint ventures are often not popular decisions: • Engineers – upset that technology is given away or bought from outside • Business managers – worry about the effect on competitive positioning • No wonder that one joint venture president said the first thing one should do before starting the job is to tear up the business plan and start again. • It is important for the managers to remember why they did the deal at first. The benchmark should be how the return on the venture compares to an outright divestment.

11. Build for the Future • rule will ensure the success of a joint venture. Effective managers are required to solve the conflicts. • A harder task is to work out how the relationships of each partner – with other players in the industry affect cooperation. • No organization is forever. • Joint ventures are tools of transition.