With the ongoing globalization process, the joint venture has become an essential expansion strategy in the world. Businesses and firms have opted to use joint ventures in order to maximize their production capacity and their profitability level. Basically, the joint venture is a special expansion strategy where a firm makes up some equity arrangement with other independent firms in order to share in their profits and earnings.
The jointed parties will however continue to operate independently of one another. The joint venture mainly concentrates on share capital ownership. It, therefore, set aside the management control of a firm. Joint venture tool of expansion is however undergoing major evolution in order to ensure that the parties take charge and control in the partnered firms. The revolution is aimed to ensure that the parties take part in the legal and fiscal decisions thus appropriately safeguarding their interests. This paper seeks to analyze some of the personal skills and attributes required for an effective joint venture.
Before a firm engages itself in a joint venture operation, a thorough analysis ought to be established first. It is important to understand that companies would seek to enter into a joint venture in order to meet the nationalistic demands. The developing and the less developed countries would therefore use these criteria in order to restrict and monitor foreigners who intend to do business in them. The developed countries will likewise use joint venture expansion techniques to explore new markets and fields. The joint venture is therefore very important as it encourages interactions between different nations.
Foreign investors would therefore be able to effectively enter into a joint venture with a local company (Yan & Luo, 2001, p. 3). And since this will be fully accepted by the government the foreign company will obtain a positive image which it can use to maximize its returns. Although joint venture aims at expanding the firm’s operations, a firm should ensure that it only engages itself in a viable venture. As a firm that seeks to expand into other new markets, it is critical that proper evaluation on what the company produces and how its operations have been in the recent period be done. Such analysis will not only inform the company about the other’s operation and performances, but will also prevent a firm from engaging in a venture which is not economically viable.
The future sustainability of the venture should also be considered before initiating the plan. As a matter of fact, it would not be economical at all to heavily invest in a company that doesn’t have continuity. Such undertaking can lead to lose incurrence which should be discouraged at all costs. The feasibility analysis should therefore be undertaken in order to determine the future sustainability of the prospective company.
As a manager, I would purpose to ensure that my company fully screens the operations and performances of the firm it intends to sign up a joint venture agreement with. This will enable the firm to engage in profitable ventures and thus seek to maximize the stakeholder’s wealth. Cautiousness will also enable the firm to maintain due diligence while seeking a joint venture. The due diligence will involve the verification of financial statements and other records which indicate the performance and legality of the firm. It is important to analyze the financial statements of the prospective company for the last five or so years.
Such analysis will fully give the true reflection of the company’s performance and also its potential in the market. The analysis can also enable the company to know the areas it can advise such a company to improve on in order to register a more positive performance. It will also enable the firm to determine whether the company has been operating lawfully.
Cautiousness can however be exercised if and only if the situational leadership is exercised within the firm. The situational leadership style will enable the firm to swiftly change when it’s necessary in order to suit the market. As a leading consensus building should be encouraged in order to ensure that others’ opinions and ideas in the issues are incorporated in the firm’s decision. In order to ensure wealth maximization, I would emphasize the fielder contingency model. Such a leadership model would assist the firm to efficiently utilize the prevailing situational favorability when entering into a joint venture.
It will also efficiently guide and regulate a firm’s relations in order to ensure that it’s economically viable at all times. Such a leadership style will also enable the firm to influence positively the operation of the opponent firm.
As a result, there will be an increased production in the two companies which consequently adds up the wealth of the joint partners (Gutterman, 2002, p. 23). The company will also have highly structured guidelines which guide employees from both firms on what needs to be done in order to ensure increased economic growth. Situational leadership will also provide more favorable situations which will boost the worker’s abilities and output. The situations will also boost the morale of the staff members and thus motivate them to have improved output. Such leadership will also encourage people to utilize their potentials effectively.
As a leader, it’s important to have dexterity and optimism attributes. This is because the attribute assists the leader and the firm to move speedily and in the right direction. Speedy decisions are also assumed in order to ensure that the firm takes up all the available and prospective opportunities. This will be undertaken by fully analyzing the consumer’s needs in the market. The analysis will also enable the firm to acquire feedback from its consumers.
Through the feedback and suggestions, the firm will clearly position itself in meeting its client’s needs. As a leader I would ensure that it’s in the company’s first priority is to meet the needs of their customer since by so doing the firm will be able to maximize its production. I would also invest a lot in the research and development program since that will assist the firm to maintain currency in its production techniques. The research program will also enable the firm to effectively meet market needs. Better and improved quality will be produced and the department will also seek to ensure that the production minimizes the production costs within the firm.
The production department will also incorporate the customer feedback in order to come up with product brands that fully suit them. All this undertaking will enable me to fully exploit my optimism and dexterity attributes. The move will also enable the company to expand its businesses and operations throughout the world. As the company enters into joint venture operations, its market will equally expand and likewise will be its output. The speedy flexibility of the firm will enable it to fetch more market and thus increase its profitability level (Overton, Frey & American Bar Association. Committee on Nonprofit Corporations, 2002, p. 98).
As a leader, it is also necessary to have endurance attributes. This can be easily attained by sufficiently utilizing the available skills and experiences in order to combat the hardships which come as a result of the joint venture. Since joint venture has continued to adamantly perform despite the attractive potentials it gives to firms, much should be researched on the major causes such as sluggish growth.
According to Miller et al (1997), there has been a significant underperformance in the national and international joint venture companies. The situation is worsened by the fact that even where companies operate in the same country and industry are also vulnerable to failing to attain the expected results. In order to efficiently improve in the joint venture inefficiencies, the main cause of this problem should be identified. After clearly identifying the problems proper measures should be established in order to improve the current situation.
Among the major issues which have continued to make it hard for the joint venture companies to excel includes the agreement negotiation’s problem. Different managers have given mixed reactions on how the agreement terms have continued to haunt the efficiency of such cooperation. There are some managers who view that the agreement fails to fully address the long-term nature of the company’s relationships. As a result, companies just enter into joint venture agreements with a short-term objective. As we all understand the success of any form of agreement is directly determined by the commitment of the two parties involved. In a situation where parties lack clear long-term objectives then, such relationships automatically fail.
The later group of managers has a different view than the long-term objective is totally irrelevant as far as the joint venture agreements are concerned. According to them the reason for the sluggish growth in the joint venture is a lack of commitment and willingness to effectively utilize the cooperation to the firm’s benefit. They also argue that if companies enter into an agreement that they are not willing to accomplish, automatic failure is inevitable.
Workable and successful cooperation should therefore be established if the parties are willing and committed to seeing it succeed. Although this argument is true, it is still not appropriate to disregard the significance of the long-term objectivity in the agreement. Since managers are barred from the long-term objectivity of the joint venture negotiations due to the lengthy time involved in the negotiation process, a better and speedy process should be invented in order to cater to this shortfall. The overall process should be simplified in order to ensure easy understandability as that would help reduce the time taken in the consensus-building. The equity and control structures should be brief and clear for easy understanding.
As a leader, it is important for the companies to understand why they are entering into a joint venture. The two companies should also fully understand all the benefits that accrue due to such cooperation. Such awareness will assist the parties involved to surrender control and financial shares between them. As a manager, I should implement a mixture of these two arguments in order to ensure the success of the joint venture my company enters into. Such considerations will also enable my firm to thoroughly lay sufficient infrastructure which will ensure success in the venture agreement (Glover & Wasserman, 2003, pp 1-16).
Proper measures also need to be established in order to ensure that the parties involved allow technology transfers between the. Such undertaking will not only ensure the success of the companies involved but will also seek to ensure improved and quality productions. In order to encourage technology transfer between firms, contracting companies should design proper and efficient remuneration processes through which they will earn from the transfer process.
Companies should also seek to adjust accordingly their intellectual property rights in order to accommodate such transfers. Proper measures should also be laid down in order to protect intellectual property rights. In order to ensure that the two companies undertake an effective joint venture program, it is important that the two companies have an efficient valuation of assets and liabilities. The valuation process should also incorporate the intellectual properties and the equity shares owned by the company. It is also best if the two companies exercise transparency in the overall process.
The financial transactions should truly reflect the actual performance of the company. The two companies also ought to agree on the kind of accounting standards which they will follow after the signing of the agreement. This mainly applies to the companies which use different accounting standards. This is because transparency will increase goodwill and faith between the two parties. The negotiation agreement should also ensure that proper conflict resolution technique is put in place to handle conflicts in the two companies.
This is vital to the cooperation since most of the joint ventures fail due to a lack of a proper way in which disputes between the two parties are resolved. It is equally important that the two companies agree on how to divide the management responsibilities between themselves. Clear-cut guidelines on the shared responsibilities should be established in order to avoid events where conflict of interest arises. Companies should also indicate the degree of independence that each company will be required to retain.
The establishment of a clear operational guideline will resolves cases of either company acting outside its powers. In order to fully address the ownership issue, it is important that the two companies modify the equity structure in order to capture the joint venture status. The change in the ownership structure will assist the companies involved to specifically know their net worth.
It is also advisable for the two companies to structure how to sort out dividends and other financial matters. A good dividend policy should be established in order to safeguard the interests of the stakeholders. Such policy should consider the companies which enter into a joint ventures with an aim of expanding their market share while others may be seeking to relatively increase their cash flow from the financial contribution made.
It is therefore important to thoroughly negotiate on such issues in order to ensure that conflicts do not arise in the cooperation. Since joint venture seeks to maximize the stakeholder’s welfare, the two companies should establish how to handle the marketing and staffing issues. This is because there might be some contention if one of the companies seeks to control the distribution channels. In some instances, the one of the companies may assume the recruitment role which may make the other company feel much side-lined.
It is therefore important to undertake a thorough negotiation before entering into the agreement on how to share in the marketing and staffing responsibilities. Such negotiations will also enhance a smooth flow of operations between the two companies. It will also ensure that the two companies actively participate in the growth and development of the newly established firm.
The contention mainly arises when a multinational company seeks to enter into a joint venture with a local firm in a developing country. The local company may view that allowing the multinational company to fully explore the domestic market will pose a great danger to other domestic firms operating in the same industry. Proper negotiations on when and how the two companies should participate in the marketing and staffing duties should be agreed upon (Dunning & Boyd, 2003, p. 251).
It is important that a leader possess the willpower to make things happen and also to effectively operate. The attribute enables the leader to overcome the operational problems that may arise. Considering that a joint venture totally changes the company’s operational scope, it is important to adjust operational wise in order to suit the new scope. There are some operational problems that are somehow foreseeable and should be taken care of during the agreement negotiations.
On the other hand, there are some operational problems that are not foreseeable; provisions should be made for such. In most cases, there will be a coping problem where the companies are unable to adopt the multinational aspect of operations. This problem mostly affects companies from developing countries when they intend to enter into a joint venture with large multinational companies. In most case, the multinational corporation may require the local company to operate on the stand view of the global network.
Such requirements may threaten the local market perspective which should be considered by the domestic firm. The local company may wish to fulfill the needs of the local market. Such differing operational objectives may hamper the smooth running of the joint venture, thus a proper measures should be put in place to prevent the conflict. There arises a problem in the joint venture when the multinational company denies the other company the right to export inferior goods. This may be done by establishing some export standards which the local company is not comfortable with.
The two companies may also have different opinions on tax. This is because the multinational company may be seeking to minimize its worldwide tax burden while the local company may be seeking to reduce its national tax. And since the multinational corporation may implement its tax reduction without necessarily acknowledging the interests of the local company, an agreement must be sort first. Multinational companies are known to effectively manipulate their tax through transfer pricing mechanisms (Briscoe & Schuler, 2004, p. 446).
Such tax avoidance strategies may not work to the benefit of the local partner since more money will be lost to the foreign company. The local company should also be willing to uphold new status which may provide them to pay more tax to the government. It is therefore necessary to make sure that the two companies agree on how to undertake that tax issues and thus reduce conflict between them (Julian, 2005, p. 87).
The two companies should also seek to establish proper investment and dividend policies which will maximize each other’s wealth. This will apply if a multinational corporation enters into a joint venture with a local company. The multinational corporation maybe implementing a global investment policy that encourages the transfer of funds from one region to another. Such policies may therefore require them to prefer being given their dividends instead of reinvesting them in the local company.
The local company may on the other hand have a converse opinion since to them the reinvestment of the funds may help them to expand the production capacity they currently operate in. their expansion needs may therefore fail to be favored by the policy adopted by the multinational corporation (Oman & Organisation for Economic Co-operation and Development. Development Centre, 1989, p. 220).
Some differences may also arise due to the partner’s size. The local companies are in most cases considered smaller than the multinational corporation. The local company will require pumping more capital in the initial stages of the joint venture in order to ensure rapid expansion. This, therefore, tends to sideline the multinational corporation as it will be the major financier. The end result also shows that the local company will end up benefiting more compared to the multinational corporation. Multinational corporations on the other hand should efficiently monitor their investments in the local company in order to ensure that maximum returns are obtained from the expansion. Such can be undertaken if and only if the multinational corporations attach professional experts to monitor and coordinate things in the local company.
Moreover, the ownership and control problems should be prevented throughout the cooperation period. As it already reported joint ventures encounter control and management problems immediately the attitude changes. As most of the local companies are formulated and established through a family patriarchal line, a change in the company leadership may totally disorient the original company commitment. The attitude may change as the ownership and the management of the multinational corporation change.
The attitude changes are however not predictable, but since all the patriarchal managed companies are greatly affected by the abrupt change of attitude the multinational corporations ought to be cautious when engaging in such type of companies. In most cases is the multinational corporation changes the attitude, the local company technically suffers but the suffering cannot be compared with the one they suffer when the local company changes. This is because the multinational corporation will have heavily invested in the local company and an abrupt withdrawal will greatly impact it financially and economically.
Other control problems such as the disagreement on what product line to undertake may arise between the two companies. This is because each company might be interested in producing a different type of product. The multinational corporation may opt to extend the current product line in the local company while the local doesn’t want to. Such differences in opinion might end up hampering the operations of the joint venture. The two companies can also experience a problem in the component and material source. The joint venture will require more raw materials due to the expanded operations. Such material requirements may however not be met by the current company suppliers in the local company.
Other sources may therefore be required in order to fully meet the material demands. In such a case both the multinational corporation and the local company should agree on the best alternative source. The source problem may also be contributed by the quality of materials the suppliers offer. The local company may be seeking just a cheap material and component source while the multinational corporation seeks quality materials. Such conflict of interests should be agreed upon by the two partners.
The operational problems may also arise as a result of the technology being utilized in the joint venture. The local company may feel that the existing technology is sufficient while the multinational corporation advocates for technological expansion. It is important to reach a consensus on the kind of technology to implement in a joint venture. The multinational company should in this case explain to the local company some of the benefits that the joint venture will accrue from adopting new methods of production, management and monitoring systems. Proper training should also be given to the local staff in order to familiarize themselves with the new technologies. A proper implementation strategy should also be used in order to safeguard the interests of the two partners.
As a leader of the company entering into a joint venture, interpersonal skills should be highly acknowledged. This is because such skill will enable me to efficiently exploit my duties well considering the diverse operations involved in the running of the company. The skills will also assist me to integrate well and resolve the company’s affairs without sidelining either of the partners. The skills will also enable me to unify the two diverse partners. Diplomatic reasoning and consensus building will also be greatly required in running the joint venture. Since every partner comes from a different country, cultural differences are inevitable.
The management body in the joint venture will comprise people from different cultural backgrounds. It is therefore important for the joint venture to be guided by the set mission statement and objectives at all times (Gutterman, 2002, p. 97). The problems can result from the difference in economic transitions, social-political and economic systems. The interpersonal skills and diplomatic relations should be used by the two partner’s management teams in order to ensure that the company sails through such problems.
Since there are dynamic relationships in the joint venture the two partners should be psychologically prepared for the changes. Such dynamic changes can efficiently be taken care of through regular training and learning programs. The program will also enable the partners to gain from the cooperation. In most cases, the local company will tend to learn and acquire more skills and knowledge from the joint venture compared to the multinational company.
But still, the multinational corporation will also familiarize itself with the local environment. The skill will enable them to strategically position their operation to gain from the cooperation. Such knowledge can therefore transform the operation of the joint venture as the two partners seek to maximize their wealth. The relationships between the joint venture can also be altered if the partners agree to undertake new technologies in production and overall running of the joint venture. The current technology used to run and produce in the local company might become obsolete thus forcing the joint venture to have an immediate change or transformation.
The expansion and improvement of the marketing strategies in the local company might force it to change immediately after the formation of the joint venture. In case the local company used to produce goods for local consumptions, a joint venture may expand the production to enable it export into the global markets. Such legal and structural changes, therefore, require to be synchronized well in order to have beneficial returns.
The joint venture is a special expansion strategy where a firm makes up some equity arrangement with other independent firms in order to share in their profits and earnings. The jointed parties will however continue to operate independently of one another. The joint venture mainly concentrates on share capital ownership. It, therefore, set aside the management control of a firm. Special personal skills and attributes should be used in order to effectively manage an international joint venture company. Before a firm engages itself in a joint venture operation, a thorough analysis ought to be established first.
It is important to understand that companies would seek to enter into a joint venture in order to meet the nationalistic demands. The developing and the less developed countries would therefore use these criteria in order to restrict and monitor foreigners who intend to do business in them. The developed countries will likewise use joint venture expansion techniques to explore new markets and fields.
The joint venture is therefore very important as it encourages interactions between different nations. Foreign investors would therefore be able to effectively enter into a joint venture with a local company. And since this will be fully accepted by the government the foreign company will obtain a positive image which it can use to maximize its returns. Although joint venture aims at expanding the firm’s operations, a firm should ensure that it only engages itself in a viable venture.
As a leader, it is also necessary to have endurance attributes. This can be easily attained by sufficiently utilizing the available skills and experiences in order to combat the hardships which come as a result of the joint venture. Since joint venture has continued to adamantly perform despite the attractive potentials it gives to firms, much should be researched on the major causes such as sluggish growth. It is important that a leader possess the willpower to make things happen and also to effectively operate.
The attribute enables the leader to overcome the operational problems that may arise. Considering that a joint venture totally changes the company’s operational scope, it is important to adjust operational wise in order to suit the new scope. There are some operational problems that are somehow foreseeable and should be taken care of during the agreement negotiations. As we all understand the success of any form of agreement is directly determined by the commitment of the two parties involved. In a situation where parties lack clear long-term objectives then, such relationships automatically fail. As a leader of the company entering into a joint venture, interpersonal skills should be highly acknowledged.
This is because such skill will enable me to efficiently exploit my duties well considering the diverse operations involved in the running of the company. The skills will also assist me to integrate well and resolve the company’s affairs without sidelining either of the partners. The skills will also enable me to unify the two diverse partners. Diplomatic reasoning and consensus building will also be greatly required in running the joint venture. Since every partner comes from a different country, cultural differences are inevitable.
Reference List
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