Why are so many companies opting for Joint -Venture?

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.

What do U.S. managers need to know about leading in the international arena?

As countries become more economically advanced, participative styles may well gain in importance. This does not mean that MNCs can use the same leadership styles in their various operations around the world. There must always be careful contingency application of leadership styles. That is, the style of leadership that is successful depends on the situation the leader faces.

Cultural differences do play an extremely important role in effective leadership, however, and must be carefully considered when leading people in different countries. For instance, in countries where there never was a private investment, most of the managers do not have the experience of leading a big organization, in addition, they may not help a MNC achieves its goals, because they are used to work for the government. In this case, the appropriate leadership style would be an autocratic.

When U.S managers are in Japan, if they want to have high achievement the leadership style that emphasized both task and human dimensions is the most effective. However, among low achieving groups, the leadership style that is most effective is the one which focuses highly on task and low on the human dimensions.