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  • 03Jan

    What are joint ventures in international business operations?

    When discussing international operations, a joint venture is an agreement where two or more partners own and control foreign operations. Such a firm is usually located in the home country of one of the partners.

    Types of joint ventures

    There are two types of joint ventures. A very rare one is non-ownership type where one group only offers services to the other group. The group offering services is, as a rule, more active party. An example is a consulting firm hired to perform analysis and evaluation and give recommendations to other party or an construction company making an agreement to build a damp or housing complex in an undeveloped part of the partner country; or mining company having a contract to extract or a deposit in the partner country. 

    The usual type of joint capital venture involves multinational company’s (MNC) financial investment together with local partner. Such an arrangement adapts the degree of partner control, the amount of assets, technology expertise and managerial practice each partner invests. Most of the foreign companies are more interested in the degree of control than their share in an enterprise. Many local partners also insist on control what may cause serious problems. In recent years joint ventures have become very useful for both interested sides, especially because of sharing a risk.

    Risk sharing is one of the reasons for joint venture.

    Risk sharing is one of the reasons for joint venture.

    While there is a lot to negotiate to make a contract on a joint venture, the final result have to be acceptable for both sides. Many such agreements have been successfully concluded lately.

    General Motors and Toyota JV

     One of the most complex contracts was one between the General Motors and Toyota. These two great companies made a joint venture called New United Motor Manufacturing that had last more than 25 years. For General Motors this was the opportunity to see the newest trends in Toyota’s lean manufacturing and to learn something from Japanese business culture that was more and more popular by the 80ies. From the other side, Toyota saw the opportunity in emerging on the market of North America.

    Current trends

    Joint ventures are extremely popular in the new market economies. For example, at the beginning of the 90ies, foreigners signed over 3.000 contracts on joint ventures in Eastern Europe and Russia. However, the first step is to analyze the situation carefully and find out whether the market for desired goods and services is large enough, and then make all interested parties to understand their responsibility and get the agreement on complete operations. The venture has serious chances to succeed if all these questions can be solved.

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