Topic
Analysis of Joint Ventures (Formation, Features, Challenges and Exit Strategies)
Instructions
JVs, Alliances and FDI
One widely used method of entering into or expansion within non-domestic nations’ markets is
through Foreign Direct Investment (FDI). One method of FDI is to form a joint venture or other form of
alliance with a local partner from within the market which the JV/Alliance is intended to serve or with a
partner of a non-local company operating in this same market.
When a company is relying on exporting to serve its foreign markets one method of expanding its
operations within a non-domestic market it to switch from export to FDI. One method of FDI is to
form a Strategic Alliance with either a partner company domiciled within the foreign country or a
partner from another country which also wishes to do business within that country or group of
countries concerned. A common form of Strategic Alliance is to form a formal and legally constituted
joint venture (JV) owned jointly by the partner companies concerned.
1. Explain the essential features of a joint venture
2. What are the main problems and difficulties the participating companies in a
JV are likely to encounter?
3. How would you evaluate the suitability of a potential JV partner before
committing to the partnership?
B) Once a JV has been formed this may be intended as a permanent arrangement or just a temporary
means to an end. If one partner wishes to exit the JV (cash in its investment) at some future date what
are the main methods by which it could do so at the same time as maximizing value for its parent
company shareholders?
Answer preview
A joint venture is a strategic business enterprise that comes into existence following an agreement by two or more firms to form a single business to do business and achieve a specific business goal (Wang and Ma, 2016). Joint ventures are a way of entering new foreign markets. They can also be formed by companies in a specific country to achieve a certain goal, without necessarily venturing into a new foreign market. Considering that a joint venture brings two or more firms that have a shared goal it is imperative that a careful selection of the joint venture partner(s) be done carefully. Such a careful selection of partners is essential to ensure compatibility and synergy in the pursuit of the goals, so as to increases the odds of succeeding in the market.
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