A Review of Literature on How to Manage International Joint Venture - 1

A of on How to Manage International Joint Venture Successfully - Literature review Example This presents companies with greater opportunity to explore new foreign markets. IJV is an endeavor by a foreign firm to complement its product with local inputs and knowledge or in another case where the foreign firm has no right for property acquisition. Although IJVs have greater advantages, many severe problems appear to be intrinsic characteristics associated with poor IJV management. Many researches revealed that IJVs are volatile, hard to effectively manage and often fail especially when the venture is formed in a developing country. These researches stress that main reason for failure is inherent difficulties and tensions between the firms in managing the IJVs. Why Joint Ventures Fail Rond and Bouchikhi (2004) highlighted that this form of organization is quite challenging. In this context, cooperation as the main characteristic inherently required to defuse internal and external tensions. Hamel (1991) identifies the possibility of incompatibility with partner’s object ives resulting in conflict of resource priorities. This makes ventures prone to instability and ultimately to failure (Yan & Zeng, 1999). Many joint ventures are destined to failure because of following reasons:- Unrealistic Idea – In ideal scenario, companies form joint ventures because they do not have the required resources or expertise to undertake such efforts at their own. In fact, this form of partnership is more directed by risk sharing rather than resource sharing. Risks associated need to be evaluated because the risks identified by one firm prior to forming the venture would still be there and may not be mitigated by the cooperation of two firms turning into an unrealistic idea prone to failure. Inadequate Planning – Usually, there are no plans and what is available is a statement of intention or a form of memorandum of understanding describing the contribution and profit shares of both the firms. However, there lacks a proper plan for managing the venture, accomplishing the actual task and set the modalities of interaction and conflict resolution between the two firms. The plan must include:- The arrangement on which Joint Venture is based Future tax planning Both party’s contribution and obligation to provide resources Provisions for meeting the future needs Logistics planning Decision making and management Distribution of earned assets Issue and conflict resolution Conditions and provisions for conclusion Inadequate Capital Investment- Both parties usually allocate a fixed amount of budget that is deemed enough for the Joint Venture to meet its end objectives. However, costs overrun resulting in dispute and arguments. This necessitates thorough risk management planning and allocate contingency amount to cater for such situations. Lack of Leadership –In Joint Ventures, each party would like to act in leadership role to take control of situation and credit to itself. This may result in stalemate causing huge damage to ve ntures. Thus it is very critical to define in the beginning the roles and the mode for conduct of daily operations. Lack of Commitment – Companies usually expect huge and quick profits from a Joint Venture and when expectations are not realized, the parties begin to lose interest in the venture. Thus it is very