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International Joint Venture: General Motors and Toyota Research Paper

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Updated: Sep 16th, 2019


As corporate competition intensifies, businesses, especially multinational corporations are gradually expanding towards international boundaries to explore emerging markets. New business globalization strategies are emerging and firms are now adopting cross-border business partnerships known as International Joint Venture (IJV) approaches to enhance the growth of their businesses.

Joint Ventures are different organizational entities developed through agreeable terms of two or more firms with the intent of achieving certain strategic purposes. According to Beamish and Lupton (75), “joint ventures aid firms in accessing new markets, knowledge, capabilities, and other resources.”

While open international trade associations among nations have opened doors for successful multinational corporations to engage in joint ventures, multiple issues arise from IJV practice. Although the practice may deem significant and successful over time, the shared ownership often experience instability risks in the partnership as the joint venture involves different parent companies (Beamish and Lupton 75). Therefore, this essay analyses the case of IJV between General Motors and Toyota.

Overview of the Case

Years after the realization of International Joint Venture as a business practice that enhances global business expansion, corporate firms from the United States, United Kingdom, and Asia Pacific regions started working jointly.

China and Japan opened free trade to many European nations and multinational companies from different nations amalgamated to venture in the burgeoning economies (Li et al. 52). Around 1980s, the automobile industry grew exponentially subsequently leading to international joint ventures between multinational companies from the United States and those from Japan (Beamish and Lupton 75).

By February 17 of 1983, General Motors of the United States entered into a production memorandum with Japanese Toyota Company purposely for mutual business growth (Kwoka 46). General Motors reached a consensus with Toyota following its troubled motor business in the United States and general exports, following the shooting of oil price around the Middle East. Toyota Company was by then leading in the production of small cars that satisfied consumer.

None of the corporate firms could ascertain that this international Joint Venture between these great multinational could lead to one of the prime controversial corporate antitrust instigations of the modern days (Kwoka 46). The quandary that emerged after the mutual agreement was whether it would lead to an increase in production of smaller cars domestically manufactured by GM in the US or pricing wrangles between the two partners.

Beamish and Lupton (80) assert that, “organizations engaging in mergers and acquisitions may spin off joint ventures that do not fit the strategy of the new parent.” Multiple antitrust questions emerged since the inception of the joint venture between the two companies as corporate analysts focused their attention on several emergent issues (Kwoka 48).

Making a decision on the relevant automobile market became a dilemma for the two partners, issues about the economic impact of the venture, and operational efficiencies in the joint venture as well, became questionable matters between the companies.

While international joint ventures provide multinational corporations with opportunities to explore emerging markets and share business strategies, some joint ventures come with malice intentions than mutual benefit (Steensma et al. 495).

Shortly after breaking down its mutual agreement with Ford at around July 1981, General Motors Corporation now known as General Motors Company presented a joint venture proposal to Toyota Company. General Motors Company has had a mixture of success and failure throughout its operations in the automobile industry (Kwoka 47).

Knowing that its market of large-size fuel guzzler cars was in jeopardy and gradually dwindling following the dramatic rise of oil across the world, General Motors ensnared Toyota into a partnership. The two companies under agreeable terms were to invest equally in a joint business enterprise that Toyota Company would operate (Kwoka 47). The agreement also allowed a General Motor sub branch located along the West to produce some corolla-branded General Motor vehicle.

The giant Japanese automobile company was still reluctant to form a joint venture with General Motors on the basis that operating costs in Japan were considerably lower as compared to operational costs in the United States (Kwoka 47). However, following demand for small cars that would be cost effective as presumed, the Toyota Company entered into bilateral relations with General Motors.

Under the umbrella of the two companies who agreed to invest equally in the twelve-year partnership deal, the newly developed venture received a new name, NUMMI (New United Motor Manufacturing, Inc (Kwoka 48).

Apart from equal investment agreement, the initial agreement about the joint venture was that the establishment intended to venture into the production of the new compact cars lasting, and not any other cooperative deal (Kwoka 49). Moreover, Toyota Motor would dominate the top management, control labor relations, provide car-assembling components, and design the cars in the bilateral business. More importantly, agreed NUMMI venture would operate for only 12 years.

Despite joint venture largely depending on agreeable terms and concession between the two or more business partners, legal issues must remain acknowledged in partnership deal (Beamish and Lupton 80).

In the process of entering into agreements about the formation of NUMMI both General Motors and Toyota Company breached some legal regulations that control bilateral trades. In the context of the United States business and trade regulations, before engaging in any mergers, corporate partnerships, business acquisitions, joint ventures like NUMMI, parent organization must respect federal laws (Kwoka 47).

For an international joint venture involving companies from the United States and other countries become acceptable, the agreements must comply with the stipulations of the Federal State Commission (FTC) of the United States. As the FTC has the capacity to impose certain restrictions within the joint venture, especially anticompetitive issues, companies engaging in a joint venture must consider engaging the FTC in their agreement (Kwoka 49). General Motors and Toyota failed to comply with FTC regulations.

The FTC has the power to minimize restrictions that encourage anticompetitive effects of bilateral trades and capitalize on the competitive benefits through federal antitrust acts (Kwoka 50).

Based on the case reports, the FTC alleged that it was not aware of the joint venture between General Motor and Toyota and that it did not approve the partnership. Following such allegations, the FTC sought to challenge the joint venture of GM-Toyota legally through the United States antitrust laws. Many Asian countries have been using protectionist measures in the international trade and this meant the GM-Toyota agreement would probably have issues of industrial competitiveness.

The FTC filed a lawsuit against the joint venture between General Motors and Toyota predominantly to protect and improve the industrial competitiveness of United States corporations in the global market (Kwoka 50). Joint ventures approved by the FTC were rarely subject to antitrust actions from private organizations. Controversially, Americans fear of losing international competitiveness resulted in approval of the GM-Toyota joint venture.

Whereas the agreement of General Motor and Toyota Company on the NUMMI joint venture breached the FTC antitrust regulations stipulated under the Hart-Scott-Rodino act of 1976, the venture commenced although with legal prejudice (Kwoka 49). In this scandalous joint venture, the five Federal State Commissioners also practiced legal intolerance by deliberately consenting and approving the controversial joint venture.

The United States federal law enforcers themselves played fowl in protecting the national interest in terms of international competitiveness as denying GM to produce small cars would ruin their international business competence (Kwoka 50). As an independent federal administrative agency, the FTC had the mandate to abolish or legitimize a consented joint venture.

Apart from the five federal trade commissioners taking part in the investigation of the joint commission as requested, an independent private economist investigated the claims (Kwoka 50). Despite the report from the private consulting economist suggesting that the GM-Toyota venture was unlawful, FTC voted on 3-2 margin and illegally approved the venture.

Economic Analysis Relevant to the Case

The United States has been very sensitive and competent in protecting its international supremacy, especially through the international markets and trade (Steensma et al. 495) Illegalizing the agreed joint venture between General Motors and Toyota could have resulted to serious economic implications for the United States.

Automobile industry of the United States has been in the forefront in promoting growth of national economy and the ruling of FTC must have focused on the enhancement of economic efficiency. According to Steensma et al. (492), “the extent of control by foreign or local entities on joint ventures also has important economic implications.”

The FTC commissioners and knew the perceived importance of the joint venture between the two companies to the economy of the United States. Failure to approve the venture during the moment of rising oil prices would hamper the sales of big fuel guzzlers produced by GM and other automobile companies in the United States; hence, affecting the national economy and its business reputation.

Multinational corporations from Asian, Europe, and America have been essential in balancing the global economy through their involvement in international trade (Steensma et al. 493). However, the joint ventures agreed upon by these multinationals normally raise economic questions ever since bilateral agreements become acceptable.

General Motors-Toyota joint business was likely to suffer from implications of cooperative behavior. Determining the relevant product or the compact car, that NUMMI would design was an economic question to consider in the General Motor-Toyota partnership. Japan during this moment was the leading exporter of automobiles in the United States, and therefore, the NUMMI partnership would affect Japanese car exports to the United States (Kwoka 51).

Although the initial plan and target of General Motors targeting in the joint venture would have, to develop small cars that satisfy consumers in the American market, economics of market viability emerged. Although American domestic market could produce potential consumers, 200,000 to 400,000 units of new vehicles would exceed the market capacity.

This meant that it was essential to identify a potential geographic market for the surplus production and export purposes to enhance further global outlook. The United States has several automobile companies that have always been competing for the same domestic market (Kwoka 60).

Considering the American domestic automobile market for the newly designed vehicles was ambiguous as the market already had potential car manufactures and related production facilities. Economists always consider cars as differentiated goods where consumer behavior relies on consumer attitudes and perceptions on the car designs.

Not all the differently designed cars imported into America or homemade earn the anticipated market reputation and the likelihood of the new cars to triumph in the market were unpredictable. America also had restrictions on imported cars and only allowed 1.68 million units annually (Kwoka 52). The concept of demand and supply in the economics of a market directly emerge from this viewpoint.

The signing of General Motors-Toyota joint venture came shortly after the United States and Japan mutually introduced the Voluntary Restraint Agreement (VRA) to limit certain Japanese imports into the United States (Kwoka 56).

The VRA is a form agreeable business engagement of that the United States adopted to regulate excess automobile imports from Japan. The VRA was a principle that was to become effective in two years from 1981. For economical perspective, VRA is a willful reduction of exports from an exporting country or without any coercion from trade tariffs and quotas developed by the importing country (Kwoka 56).

From the Japanese side, economists believed that it was a malicious plan by the United States government and its automobile industry to destroy the Japanese flourishing automobile market and industry. It was likely that following reduced imports of Japanese imported vehicles, Americans would rely on their domestically produced vehicles (Kwoka 56). If VRA would persist prior to the agreement, huge economic implication would befall Japan as a nation.

The General Outcome of the Case

Prior to its development and commencement, the reality about the unexpected and unforeseen economic consequences of the joint venture began protracting with time. The notion that General Motors was to pick the ideas of assembling small cars from the NUMMI joint venture and integrate it into its plans became futile (Kwoka 72). Limiting the size of the venture and its operational duration in the United States, predominantly to give General Motors a chance to pursue its plans of assembling small cars went unsuccessful.

General Motors was unable to begin domestic assemblage of small cars, especially of Isuzu R-Car as per their anticipated plans and other small cars (Kwoka 74).

Another foremost intention of the NUMMI joint venture was to assemble and produce small cars through Japanese artistic knowledge and management at considerably low operational and market expenses (Kwoka 75). Despite producing efficient automobile manufacturing techniques, the facility required lesser human capital than the earlier GM plant, but was still a high labor turnover.


Although international joint ventures are powerful business techniques that enable corporate organizations to undertake cross-border partnerships and expand internationally, numerous implications are unseen. The general optimistic perception is that joint ventures between multinational from different companies result in effective exploration of new markets, knowledge, and skill sharing among other significant resources.

Reason being that joint ventures depend on parent organizations with differing management practices and marketing strategies, managing the partnerships often becomes challenging. “These companies may have competing or incongruent goals, differences in management style, and in the case of international business, additional complexities associated with differing government policies and business practices” (Beamish and Lupton 75).

The case of International joint venture between General Motors and Toyota Company is a replica of the above notions. Many multinational firms normally enter into joint venture accord principally to develop new products or services as witnessed in the case of General Motors and Toyota Company.

Unknown is the logical fact that the survival of joint ventures will solely depend on the stipulations of the memorandum signed and the behaviors of the parent companies.

The case of General Motor and Toyota may remain the most controversial and complicated, especially when one observes the economic sense of the venture and the government stipulations that existed in both countries. General Motors was hopeful that the joint venture would spur its domestic market through the production of small-size cars, but finally received mixed fortunes of mostly failure.

The FTC commissioners illegally accented the joint venture between the two companies in favor of protecting the image and competitiveness of the United States in the global market. Reliance on automobile corporations to enhance domestic economy and disproving the joint venture would lead to extreme detrimental economic implications for the United States. Playing fowl and accepting the joint agreement through a federal renowned FTC afterwards brought General Motors to economic tumble.

Whereas Japanese and their Toyota small automobile techniques successfully managed to employ their efficient techniques to assemble the anticipated cars, some issues derailed the joint venture. The quandary about getting the most appropriate geographic market and competitiveness between the Japanese and the Unites States market emerged.

The hidden agenda of General Motors was to manipulate Toyota’s small-cars technique and devise means of integrating the plan into their own designs. Everyone in the United States, including the presidentially appointed FTC thought that the NUMMI venture would be cost effective in its operations and optimistically increase the number of small cars that the American market desired.

In the end, General Motors failed to explore its earlier plan of autonomously developing small cars in the United States using their own approaches. Toyota stuck to the earlier agreements and efforts to become independent in the small-car business went futile. Therefore, while joint ventures may present firms with growth opportunities, parent firms determine their success.

Works Cited

Beamish, Paul, and Nathaniel Lupton. “Managing Joint Ventures.” Academy of Management Perspectives, 23.1 (2009): 75-94. Print.

Kwoka, John. “International Joint Ventures: General Motors and Toyota.” The Antitrust Revolution: Economics, Competition, and Policy. 1st ed. Ed. John Kwoka and Lawrence White. New York: Oxford University Press, 1989. 46-79. Print.

Li, Jiatao, Katherine Xin, Anne Tsui, and Donald C. Hambrick. “Building Effective International Joint Venture Leadership Teams in China.” Journal of World Business 34.1(1999): 52-68. Print.

Steensma, Kevin, Jeffrey Barden, Charles Dhanaraj, Marjorie Lyles, and Laszlo Tihanyi. “The evolution and internalization of international joint ventures in a transitioning economy.” Journal of International Business Studies 39.3 (2008): 491–507. Print.

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