Introduction
To extend the market reach, international companies engage in strategic alliances of two or more parties that share markets, intellectual properties, knowledge, resources, and revenue. Such business partnerships are called international joint ventures (JVs) that constitute the most challenging concept among various inter-organizational relations. The firms across the globe form joint ventures as a long-term collaborative strategy. However, they face complex and multiple internal inter-organizational relationships. This essay will examine the main intercultural and inter-organizational pitfalls posed by joint ventures and the solutions that help companies gain a competitive edge with successful joint venture tactics.
The Major Challenges in Forming International JVs
One of the most critical and problematic aspects of managing international joint ventures is the corporate relationship between the joint venture partners. More specifically, as two different companies decide to join their forces with dissimilar strategic interests and objectives, they might engage in inter-partner conflict. The latter can also be enhanced by cross-cultural distinctions, the different strategic expectations of the alliance, and dissonant internal structures and organizational processes of both partner enterprises. As a result, the overall establishment of international JVs is challenged by unbalanced partners’ ties, venture instability, and performance concerns. Additionally, inter-partner trust also impedes a venture’s performance and the impact of external institutional environments in which the companies operate.
Nora-Sakari Case
This business case represents the proposed joint venture agreement between a Malaysian company, Nora Holdings Sdn Bhd (Nora), and Sakari Oy (Sakari), a Finnish conglomerate. The core motives behind forming this international JV implied that Nora aimed to expand and diversify its current business by integrating new technology. Sakari, in turn, intended to apply switching technology to new markets and obtain market knowledge. However, their strategic negotiations have failed due to cultural differences, management style discrepancies, and the fundamental incompetence of both firms to compromise (Bartlett and Beamish, 2018). Moreover, the underlying problems of unsuccessful joint venture agreement were equity ownership, technology transfer, royalty payment, expatriate’s compensation and benefits, and arbitration.
Resolution of JVs’ Issues
Based on the above-mention case, the companies must develop strategic agility for a more efficient and profitable approach to managing international joint ventures. More particularly, the firms must formulate strong “strategic sensitivity, leadership unity, and resource fluidity” (Debellis et al., 2020, p. 2). Therefore, joint venture parties must be agile enough to develop close attention to strategic development to expand internationally through JVs. Once this step is achieved, the companies can further work on their ability to understand and trust each other to make strategic decisions and agree upon strategic changes. Ultimately, the organizations will be able to implement such alterations by relocating their resources and becoming more flexible with their business models. With this said, the main challenge for the leading firms is to preserve their strength while, at the same time, nurturing other mutually co-dependent capabilities.
Issues Related to Control, Rewards, and Performance
Given that parties engaged in the international joint venture usually pursue different strategic objectives and cultural backgrounds, they will inevitably fight for the control of the JV to amplify their interests. With the considerable internal differences of both companies, their corporate goals might differ as well. Consequently, this situation directly affects employee work performance and ultimate JV’s results. The goal-setting theory emphasizes that employee performance can attain the highest levels under challenging and specific conditions (Zhang, Ouyang, Li, Ballesteros-Pérez, and Skitmore, 2020). In addition, the intrinsic and extrinsic rewards can boost employee behaviors and work-related motivation and help the company achieve its organizational goals.
The successful IJV requires partners to regulate the resource allocation and utilization diplomatically and mindfully use the shared resource. Even minor control imbalances impede the entire process of the beneficial alliance for both parties because of the reduced information exchange between partners.
Issues Arising out of Environmental Factors
Given the intricate internal process of the IJV, its partners encounter additional collaboration challenges based on the efforts to align all stakeholders to a common objective in a complex cultural environment. For instance, in the Nora-Sakari case, there was a particular complexity of arranging the international alliance due to the different cultures of organizations. Because of Sakari’s perceived arrogance and insensitivity to the local culture of Nora’s organization, it was in Nora’s best interest to collaborate with the company that truly respects their cultural values and beliefs. Lack of understanding of differences due to national cultures requires companies to choose their partners and lean towards cultural similarities carefully. The latter is crucial for better performance because of “commonly shared values and practices” that eliminate the risk of conflict while forming and operating within the IJV (Oswald, Sherratt, and Smith, 2018, p. 24). Moreover, communication barriers and cultural gaps enhance the misunderstanding and ignorance of the host country’s rules. The ultimate cultural distance promotes fundamental communication problems that threaten knowledge exchange, inter-organizational learning, and prolific collaboration.
Solutions for Successful Joint Ventures
Based on the above analysis, the parties involved in the international joint venture can be most effectively brought together by sharing the same objectives and goals. The pivotal implications for managers imply that both parties involved in the IJV must be prudent with their strategic choices. Additionally, IJV managers should comprehend the success of exploitation and exploration in building robust relationships between foreign and local partners. The creation and delivery of new products must be based on innovative strategies that align with a foreign partner. It is also essential to learn to manage the tensions while attaining high exploitation and exploration. The following goals must be clearly defined and negotiated in forming the IJVs:
- communication goals;
- performance goals;
- conflict management;
- evaluation;
- commitment.
Conclusion
Within a complex process of forming the international joint venture, it is of the utmost importance for the firms to pursue consistency with their partners. Both parties should be firmly determined and cohesive in their resource allocation, control, and equality support in the alliance. This research has demonstrated that the lack of sense of contribution, control, and cultural knowledge in the JVs results in the conflict between the partners, which jeopardized the successful joint venture outcomes. It is essential to decipher all the main challenges that might arise to ensure well-coordinated work and process management in the context of time, quality, cost, security, and future success.
References
Bartlett, C. A., & Beamish, P. W. (2018). Transnational management: Text and cases in cross-border management. Cambridge University Press.
Debellis, F., De Massis, A., Messeni Petruzzelli, A., Frattini, F., & Del Giudice, M. (2020). Strategic agility and international joint ventures: The willingness-ability paradox of family firms. Journal of International Management, 100739.
Oswald, D., Sherratt, F., & Smith, S. (2018). Investigating collaborative challenges on a large international joint-venture construction project. Conference: EPOC 2018 – (Re)Organizing in an Uncertain Climate, 22–34.
Yan, A, & Luo, Y. (2016). International joint ventures: Theory and practice. Taylor & Francis.
Zhang, J., Ouyang, Y., Li, H., Ballesteros-Pérez, P., & Skitmore, M. (2020). Simulation analysis of incentives on employees’ acceptance of foreign joint venture management practices: a case study. Engineering, Construction and Architectural Management, 27(8), 2047–2078. Web.