Performance of International Joint Venture in Developing Economies

Performance of International Joint Venture in Developing Economies:

Chapter One: Introduction

1. Background

As the wave of globalization of economies continues to rule the world, the developing countries carry on their strategy of exploring new markets to publicize and sell their products and services. The dynamic nature of the business environment in the international scale and the pressure built up by growing competition urge the companies to sketch out strategies that would enable in creating a competitive advantage while buttressing their core competencies with the local expertise. Further, globalization has given the necessary impetus for the development of international business, which has in turn made the economies of the world interdependent. This brought the emerging economies into focus for such trade and these economies are bound to grow given the population growth rate and the increasing disposable incomes among their people. Obviously, these emerging countries attracted the attention of multinational companies and take advantage of the available opportunities.  However, the global business environment would ultimately affect their growth and performance in these countries (Chan-Olmsted, 2004).

The recessive economy of the recent times further increased the fascination of the companies for entering into trade agreements outside the domestic markets, mainly fearing to make an entry on its own because of the limitation on resources, differences among the nations in business-related issues and experience. These alliances take various forms depending on the suitability and saving they offer. The dissimilarities among the countries entering such a pact in terms of legal, socio-cultural, economic and regulatory aspects might be dealt effectively through the means of International Joint Ventures (IJV). They offer the advantages of easy market entry, risk-sharing, enable plugging into resource, knowledge and learning synergies; thereby fulfilling the goals of both the companies forming the alliance. However, practically, the formula has not been proven as a sure shot method for success in international arena because of the frequently failures that they have been facing. Problems in negotiating terms as well as operational aspects have been found to mar the performance of IJVs. Evaluating the fit before the venture, building commitment among the partners, clear terms over management control and effective conflict resolution strategies are found to be some of the interventions useful in mitigating these issues of IJV functioning (Mishra, 2014).

1. Research Question

Considering the literature relevant to all these aspects, the study envisages to evaluate the performance of International Joint Venture in developing countries.

1. Aims of the Study

The study aims to understand the international business environment, analyze it in view of the IJVs and then targets to establish the internal and external factors contributing towards the performance of IJVs in developing countries.

The primary objective of this study is to ascertain the business environment in which the International Joint Ventures operate. The fast paced changes occurring in the business environment correspond to those in the political, economic, social, technological, legal and environmental aspects. These make an impact on the partners in the IJVs, which suggests that both of these aspects are interconnected. There exists a dearth of evidence that specifically points towards the linkages in this aspect. Therefore, this study will focus on the impact of the international business environment on the IJVs and delineate various factors involved in this regard. Further, it probes the internal factors specific to the companies that influence the performance of IJVs.

In order to evaluate the impact of IJVs on performance, the research will consider the issue in the perspective of developing countries because these are the emerging economies, which are considered the destinations for IJVs of developing countries. The performance is investigated considering a case of success and then that of a failure in IJVs in developing countries.

1. Structure of the Study

The dissertation is phased into five chapters, viz., background, literature review, research methodology, research study, conclusions and recommendations. The first chapter opens up with a background and inspiration for the study. It also includes the questions that the study aims to answer, its objectives and the significance that the study carries for the users. The second chapter throws light on the aspects of international business environment that impact IJVs and also comprehends the conditions in developing countries. The next chapter illustrates the methodology selected to conduct the study. The chapter discusses the research question, the strategies used, research design and research methods. It also gives an outline of the analysis. The fourth chapter on analysis evaluates the progress of the international joint ventures, taking examples from the automobile industry of India. The IJV between Maruti and Suzuki in India is taken into account to understand good performance of the venture, while the failed alliance between Mahindra & Mahindra and Renault would be considered to ponder over poor performance, using a quanlitative research strategy.  It offers the profile of the companies and their alliances at the outset and then gets into evaluating their performance. The fifth chapter summarizes the findings and draws out conclusions from the analysis, which would be used to make certain recommendations to the aspirants of IJVs eyeing the developing countries.

1. Assumptions of the Study

Certain countries are termed as developing countries by the World Bank based on their Gross National Income (GNI), which consist of 152 nations, as per the list provided by United Nations in 2008 (World Bank, 2008). However, since inclusion of all these nations would fall beyond the scope of the study, China, India, Brazil, Russia and South Africa, the BRICS nations are being considered as the developing countries and thus, the emerging markets.

1. Significance of the Study

The study would further the knowledge about the influence that the business environment might show on the development of the multinational companies through the way of IJVs. It adds up to the existing understanding on IJV as a business strategy and expectations of the partners forming the alliance. The investigation would benefit IJVs, as it had made some interesting findings about the catalysts and concerns regarding the performance of such associations in developing countries.