International Joint Ventures (IJVs) Essay example

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INTRODUCTION: In today’s global world, multinational corporations (MNCs) need to find new markets to stay competitive. A way in which they can do this is through IJVs. Hyder and Ghauri (2000) estimate the growth of IJVs to be 25% annually. As defined by Geringer (1988), a joint venture (JV) is when two or more distinct companies come together and form a new entity. Geringer and Hebert (1991) extend this definition to include IJVs and stated that if the headquarters of one of the partners is outside the country where the JV is set-up or if it has operations in multiple countries, it is an IJV. For example, Sony Corporation and Ericsson set-up Sony Ericsson Mobile Communications with its headquarters in UK. Sony Corporation’s…show more content…
Foreign firms benefit from IJVs as they can ensure that their knowledge is being utilised properly while the local firm gains knowledge. Foreign firms gain access to vast and established distribution networks, while local firms gains access to superior products. These reasons reduce the transaction cost and motivates firms to enter into IJVs (Ibid). Resource-Based Theory: IJVs are entered into as one partner wants to further its competitive advantage in a new country or industry. Using the example of transferring technology, Tsang (2000) explains that a by forming an IJV, a MNC can oversee the functioning of the technology and protect its value. The technology is part of the owner’s contribution to the IJV, so the co-partners are assured of continuous support by the owners. Both the partners can combine their resources to get Ricardian rents, which they cannot obtain individually. As firms cannot gain access or manage all the resources, they enter into IJVs with other firms to acquire these resources and learn the technical knowhow directly from the firm (Ibid). Transaction - Value Theory: This theory is linked to the transaction cost theory. According to Zajac and Olsen (1993), maximising the value of the exchange is more prominent that minimising the costs of the transaction. They explain that if
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