Difficulties that may arise when two ore more firms from Joint venture

Joint Venture:        

A joint venture refers to a new organization established by two or more organizations. It is an agreement where two or more firms hold eqity  capital in a venture. In this venture, all the partner-firms have some degree of control. The equity arrangement between independent enterprises result in the creation of a new organizational entity. This means that the sponsoring organizations form a separate organization and have shared ownership in the newly-created organization. The partner-companies own the newly created firm. To form a joint venture, at least two firms must agree to jointly establish a new firm. Joint venture is preferred when two or more firms lack necessary component for success in a new business. In the case of construction of Bangabandhu Setu (Jamuna Bridge), for instance, no single construction firm had necessary resources to construct the bridge single-handedly. The solution was a set of joint ventures. There are many joint ventures in Dhaka Export Processing Zone (EPZ) and Chittagong EPZ, both national and international. Many companies like joint ventures to overcome resource constraints and/or take advantage of the distinctive competencies of the partner-companies. There are many countries like India where the government makes it mandatory for the foreign companies to do business on joint ownership basis. This is done to reduce `threat of foreign domination and enhance skills, employment, growth, and profits of local businesses.

Situations Suitable for Joint Venture:     

The following situations are suitable for joint venture:

1.     All the situations suitable for strategic partnerships.

2.     A business activity where pursuing an opportunity is complex or risky. If any business opportunity seems to be very complex or risky or even uneconomical for a single firm, a joint venture is a good way to undertake hat opportunity.

3.     A situation where pursuing an opportunity requires unique competencies. Many business opportunities require unique types of competences of a broader range of know-how. When a firm does not have such competencies or know-how, it can go for joint venture with another firm having the same. Thus, they can jointly pool the resources and competencies to embark on pursuing the business opportunities.

4.     Where entry to a foreign market needs local foreign partner in some countries it may be difficult for multinational companies to enter for business purposes. The difficulty in entry may arise from restrictions by the government or local culture and socio-political situations. In such a situation, a firm must secure a local partner to gain entry into the desired local market.

Difficulties that may arise when two ore more firms from Joint venture:   

                                                                                                           

A joint venture strategy offers many opportunities, no doubt. But it is not without drawbacks. Let us highlight some of the major difficulties with his strategy:

                                                                                        

·        Complicacies arise in dividing the share of control between the partners. The partners in joint venture may have controversies over the role each would play in the organization and also over the extent of control in the organizational affairs.

·        The partner-companies run the risk of giving technical know-how away to their counterparts. Any partner may capitalize on that know-how to compete directly with the other partner.

·        Conflict over how to run the joint venture can tear it apart and result in business failure.

·        In the case of international joint venture, conflicts may arise over the use of local resources, local technology, local employees, compliance with local standards and policies, export volume, operating procedures, use of intellectual property and technology, use of foreign partner’s technology by local partner, etc.

·        Disputes may stem when foreign partners start neglecting the local partner after the foreign partners may consider the local partners’ assistance unnecessary. Foreign partners may even think of dissolving the joint venture.

·        Local partners may start own business by seceding their relationship with joint venture when they could master the technology and  develop competitive skills Capitalizing on their acquired know-how, may launch their own products in separate brand names.

·        The joint venture firm may begin to compete more with one of the partners than the other when all partners are in similar business.

·        Problems may arise. When the sponsoring firms do not provide support to the joint venture equally.

·        Although the partnering companies may not have problems, they may face problems due to complaints from the customers about poorer service or about other issues.

The purposes of Merger and Acquisition Strategies:

The purposes of merger and acquisition are primarily similar. They can-

·        dramatically strengthen an company’s market position;

·        open new opportunities for competitive advantages;

·        fill resource gaps and allow the new company to do things which the prior companies could not to alone;

·        combine the skills and competitive capabilities of the merged companies;

·        achieve wider geographical coverage and greater financial resources;

·        add production capacity and expand into new areas; and/or

·        ensure considerable cost-saving through combining operations of a number of companies.