International Joint Venture Essay Example | Topics and Well Written Essays - 2500 words

International Joint Venture - Essay Example The partnership could be short term or temporary such that it ceases to exist after meeting its goal such as in case of projects. Some of IJV partnerships are long-term and last for longer periods. During the formation of joint ventures, the firms or companies combine their assets, which could be in material form or intangible such skills as well as technological knowledge. Joint ventures help in licensing, franchising as well as in export of company products. This paper focuses on why companies choose to enter into an international joint venture, reasons why international joint ventures fail and things that can be done to increase the success rate of International Joint Ventures. Types of Joint Ventures Joint ventures take different forms depending on objectives of the partnering companies. Some companies may decide to co-operate through signing of contract. This is for example viable if a small company wants to form collaboration with another larger company to enhance sale and dist ribution of certain products. A good example is the Joint venture between Tata motors and Fiat, which has been discussed under the reasons for formation of joint ventures. The joint venture helped Fiat market its diesel engines. Another type of venture entails coming up with a new joint company where each partner has a specific number of shares to enable division of expenses and profits. This option works best when the business venture involved is a long term or short-term contract. Another partnership option is complete merging of the firms involved in the partnership. When deciding the type of joint venture to get into, it is crucial for the partners to understand the responsibilities of each party as well as the risk involved in the venture. It is also important to seek legal advice in making the decision of the appropriate venture. A legal agreement should also be signed between the partners to specify on sharing of income or assets in case of failure of the venture (Gutterman, 2002, p.32-35; Yan and Luo, 2001, p.181-183). Why Companies Enter Into International Joint Ventures Companies enter into partnership for various reasons. The major reason for companies entering into International Joint ventures is for economic reasons explained by a number of theories, which include transaction cost economics, resource-based theory, transaction-value theory, real options theory, and increased returns theory (Gutterman, 2002, p.168-173; Yan and Luo, 2001, p.233-236). Transaction cost economics is a theory formulated by Williamson, which assumes that formation of IJCs helps in outsourcing since accessibility of resources such as revenue and services, becomes easier. The firms are able to exchange technological ideas and new business ideas while the market range is also expanded. An example is the Tata Motors and Fiat joint venture, which was formed to manufacture cars from both Tata and Fiat at a reduced cost. In this joint venture, Tata motors buys diesel engines fro m Fiat. On the other