Pros and Cons of Entering in an International Joint Venture
Entering in an international joint venture is one of the more effective ways to establish or form a business to foreign lands. But before entering this arena, make sure that you know what to expect. And the best way to know this is by knowing the pros and cons you will encounter.
Sharing the Cost, Improving the Financial Resources, and Reducing the Risk. Most often, those individuals, groups, companies, and corporations enter international joint venture for these reasons. They either wants to establish a business with cost higher than they can afford or reduce their investment cost to reduce the probable risk. In other words, whether you are small, medium or big company, it is always good to have someone sharing the cost and the risk with you.
Local Management Technology. Cultural differences and taste play vital roles in running a business. And the help of a local partner provides a lot of advantages for a foreign product or services to easily adapt to the culture and local employees. International joint venture eliminates the risk of discrimination. This is because some countries often prefer local businesses over foreign. The presence of a local partner improves your product’s acceptance level (not necessarily your business name) to the locals.
Vital Domestic Connections. Established local industries mean established and long standing connections with important members of the society. Partnering with these industries lets you penetrate easily to people and companies that will definitely help your business get better exposure. Local connections also imply better access to technology.
Well, there are countries but bureaucracy as their second name so it is very, very important to have a partner that can negotiate easily or have contacts that will easily help your business. However, such aim may prove to be immoral and unethical so better play the game as safe as you can.
Reduced Profit. Whatever type of joint venture you may wish to enter, the most noticeable drawback everyone can see is the reduced profit. There is nothing you can do about it since your entity and your partner share on the same equity but to increase the productivity or take a step or steps higher to ensure that the profit remains high.
Reduced Managerial Participation. This can lead to loss of control in the overall operation of the project or business, which affect many aspects: undesired outcome of the quality of the product or project, uncontrolled or unmonitored increase in the operating cost, environmental liabilities and lawsuits, and product liability. This is why most U.S. firms wishing to enter international joint venture settle these issues on the negotiation table to clarify the limits of the partner as well as the host government.
Legal Disputes. Putting up business involves complex legal issues. More so if you are venturing internationally. Thus, legal disputes are hard to avoid. It is important, therefore, to seek legal counsel before entering in an international joint venture agreement of any kind. It is also important to maintain a qualified and experienced legal counsel on a foreign land to represent you in case there is a legal issue that needs to be solved.
Entering in an international joint venture is complicated and involves major study and thorough evaluation. Take this as an aid in assessing your chances in entering into an international joint venture.