International Joint Ventures
International joint ventures refer to “contractual agreements that join” two international parties or more together for the specific “purpose of executing particular business undertakings”. All the involved parties agree on the “sharing of the profits and the losses” of the joint “enterprise” (Investorwords.com, 2011). All the business’s existing and new assets procured and development projects together with other ventures to be undertaken by the particular business will require the contribution of equity by all the parties in the proportions agreed upon. All the parties exercise control and influence over the joint business enterprise, although this is usually not uniform and it depends on the contractual agreements of the joint venture.
The international joint ventures are becoming “increasingly popular for companies and firms around the globe to “form strategic alliances”. These global companies that have “complimentary capabilities and resources”, including technology, distribution channels and finance, see the business sense in the opportunity presented by the joint ventures (Kotelnikov, 2011). The “joint development of a detailed and well articulated business plan ” is a critical primary stage of the whole process, together with the short listing of the “set of prospective partners” to be involved on the venture based on the contribution given in the development of the business plan. With the common business vision agreed upon, the involved international companies strategically implement the business plan (Kotelnikov, 2011). Before forming the IJV, a company uses a specific check list in order to select the bets possible partners in the countries proposed for international business. The checklist will also guide the “screening of prospective partners” (Kotelnikov, 2011).
It would be a” good business practice” to ensure the company verifies the “credentials of the other business parties “prior to the venture (Fuchs, 1997). China has recently grown to be among the most prospective countries to ventur into with a myriad of good companies that global business firms and companies can partner with. With its fast growing economy , the country is considered a perfect choice for IJVs and it has with time developed relevant policies regarding international business and improved international relationships with other countries; especially the US (uschina.org, 2011). The risks involved in taking IJVs with Chinese companies necessitate the conduction of careful studies on all aspects of the venture and diligent planning on the same. The vetting of the Chinese parties should be done ahead of time, in order to reduce the chances of exposing the company to unscrupulous partners (Dickenson, 2008).
Before taking the first step in considering an IJV with the prospective companies in china, there are many considerations that should be taken note of about the country. The company would find the checklist method of beneficial use at this juncture. Keeping in mind the different countries have different ways of doing business, as influenced by external and internal business environments and culture, the company should do a detailed analysis of the relevant conditions in china that will impact on the joint business venture. This will include the cultural, economic, social, “governmental/ political” considerations (uschina.org, 2011).
The existing favorable national legislations on international ventures, have led to china’s rise to be “the world’s biggest” foreign investment recipient, with almost half a million foreign investments and business enterprises. In “doing business in china” it will be imperative to learn about the business culture and factors that influence its operation (as would be relevant to the IJV), meeting protocol, business etiquette and the effective negotiation techniques with the view of maximizing business potential (Kwintessential, 2010). The concept of Confucianism deeply affects and influences business practices within the country, and as a result, business relationships in china are based on foundations oof harmonious relationship between the parties. The cultural values of “proper behavior through duty, respect and loyalty” resonate within the business organizational culture in china (Kwintessential, 2010). An important fact to note is that business relationships are usually very formal in the country, and the representatives of the foreign partners should at all times be professional in their dealing with their Chinese counterparts especially at the initial stages of the IJVs. Establishing a reliable contact who will act as the intermediary will be an important decision.
The Chinese contacts can act as reference be the interpreters during business discussions and as the foreign partners “navigate their way through the existing bureaucracy”, the “local business networks” and the legal systems (Kwintessential, 2010). In the IJVs, it will be critical that the foreign partners carry on a good reputation with respect and honor, as this will have a great impact on the business venture. Punctuality in the business meetings is vital for success, with careful planning ahead of the meeting. A late arrival is usually translated as an insult in the Chinese business culture. Being renowned as tough negotiators, it would be prudent to do meticulous planning on the negotiation techniques to be employed.
Keep in mind that ‘concessions’ usually for the primary goal of the Chinese in IJVs. In the marketing of the venture, keep in mind that it may be difficult as marketing is an “underestimated activity” and the buyers prefer to “line up at the company’s doors” (Fuchs, 1997).The Chinese companies have all along viewed production as “their main goal”, although the presence of other IJVs has slowly changed this perception. It is important to note that IJVs with Chinese partners are formed as “limited liability corporations” under the “company law” (Dickenson, 2008). In order to exercise effective influence over such an IJV it would be necessary to have” control over the day to day management, of the joint venture enterprise”.