This assignment covers topics of MNEs, international joint ventures and strategic partnerships, global product structure, economic integration and national responsiveness, international logistics and competitiveness, social media and international advertising and lastly, corruption and internationa...
6109LBSBW International Business Organisation
When are MNEs likely to use an international joint venture? When
would they opt for a strategic partnership? Justify your answer.
International joint ventures are best described by (Milton, 2012) “the joining together of two or
more business partners from separate jurisdictions to exchange resources, share risks and divide
rewards from a joint enterprise.”
To break down this definition, it is an agreement between two or more partners to own and control
an international business. The more in depth definition touches on certain benefits of joint ventures,
such as ability to exchange resources which one country may lack and the reduced risk as two
organisations with different capabilities can help spread the risk accordingly. On the other hand,
firms must be able to accept potentially smaller profit margins as rewards are divided within a joint
enterprise.
MNEs may opt for international joint venture when governments encourage or recommend it. Such
economic integration is encouraged by governments as it can reduce tariffs on the final product or
service imported from the developed country, this in turn can increase the exports and profits of the
parent firm in the developed country (Zhao, 2000). Additionally, governments from LEDCs (less
economically developed countries) may encourage and welcome international joint ventures as
through appropriate negotiation, the welfare of the developing country may rise as ultimately
creating a new business entity in an LEDC through joint venture can provide jobs and transferable
skills and knowledge for their citizens and can increase profits of both parent firms (Weigel).
Additionally, the use of international joint ventures may occur when the parent firm wants to gain
knowledge of the local economy, culture and political system within the foreign market they are
seeking to enter. A great example provided by (Steven and Bruton, 1999) proves that one of the
criteria by which its success is judged in IJV’s (international joint ventures), is the knowledge transfer
between parties and the synergy this brings to the joint venture. China is an example which is used
within this article as Western firms often seek to learn about the Chinese market and how to gain
competitive advantage whilst Chinese firms prefer knowledge about relevant new technologies or
management skills. This is the reason that dissatisfaction with the performance of joint ventures in
China is on a rise.
However, it is common for MNEs to form strategic partnerships with firms from foreign markets
instead of pursuing IJVs as it can also allow each party to provide resources or capabilities which
prove essential and may be lacking in one party. However, firms may also choose to delve into
strategic partnerships in order to share costs of new research and development which they might
not be able to fund individually. Additionally it reduces risk by lowering cost of introducing new
products through reducing average cost per unit of production according to (Rondinelli and Sylvia
Sloan, 2000). Strategic partnerships are significantly less bureaucratic as there is not contractual
obligations. Therefore, MNEs may opt for such partnership as it can be more time efficient allowing
for projects to be completed in a shorter amount of time. Lastly, these strategic partnerships may
form when firms want to avoid trade barriers and import restrictions.
Jan Chudoba Student ID: 873613
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