A joint venture is a long-term participation of two or
more companies in an enterprise in which each party contributes with assets,
has equity participation and shares risk (Alliances and Joint Ventures,
2006) .
Many companies are opting for this entry because it allows companies to improve efficiency and
create economies of scale and scope while spreading the risk between the
partners. It also gives the MNC access to the knowledge of its local partner
that will help them better understand the market and its customers in that
region, as well as the political issues going on in the region. It also lets
the MNC overcome limits on foreign companies by becoming part of the insider
group.
A fully owned company faces a high risk with such a
large investment in one area. Moreover, many countries forbid this kind of
entry, because they believe that a fully owned company will drive out local
enterprises. Moreover, the home-country unions sometimes oppose the creation of
subsidiaries, which they see as an attempt to export jobs, particularly when
the MNC exports good for another country and then decides to set up
manufacturing operations there (Fred Luthans, 2009) .
References
(2006). Alliances
and Joint Ventures. Vienna: UNITED NATIONS INDUSTRIAL DEVELOPMENT
ORGANIZATION.
Fred Luthans, J.
P. (2009). International Management (7 ed.). (S. K. Hunter, Ed.)
Boston, Boston, USA: McGraw-Hill Irwin.
Garcha, A.
(s.d.). Diplomatic Culture or Cultural Diplomacy: The role for culture in
international negotiation?
Paul R. Horst, J.
L. (2007). Cross-Cultural Negotiations. Air University.
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