An international joint venture (JV) occurs when two businesses based on two or more countries form a partnership. A company that wants to explore international trade without taking full responsibility for cross-border business operations has the opportunity to create a joint venture with a foreign partner. International investors entering into a joint venture minimize the risk associated with a direct acquisition of a business. In the development of international business, performing due diligence in a foreign country and a partner limits the risks associated with such a business transaction.
IJVs help companies form strategic alliances that allow them to gain a competitive advantage through access to partner resources, including markets, technology, capital and people. International joint ventures are seen as a practical means of transferring knowledge, for example technology transfer, from multinational experience to local companies, and such knowledge transfer can contribute to improving the productivity of local companies. Under IV, one or more parties are located where IJV operates and are also associated with local and foreign companies.
Contractual Agreement – IJVs are created through direct contracts.
Specific Limited Purpose and Duration – IJVs are created for a specific business purpose and may have a limited lifetime or be long-term.
Joint Property Interest – Each participant IV contributes property, cash or other property and organizational capital to conduct a general and specific business purpose.
Common financial and intangible goals and objectives – IJV participants share common expectations regarding the nature and amount of expected financial intangible goals and objectives of the IJV.
Joint Profit, loss, management and control – IJV participants share in specific and identifiable financial and intangible gains and losses, as well as in certain elements of IJV management and control.
Joint ventures allow companies to share technologies and additional intellectual property assets for the production and supply of innovative goods and services.
Joint ventures can be used to reduce political demands. friction and improve the local/national acceptability of the company.
Joint ventures can provide specialized knowledge of local markets, access to the necessary distribution channels and access to raw materials supplies, government contracts and local production facilities.
In an increasing number of countries, joint ventures with host Governments are becoming increasingly important. They can be created directly with state-owned enterprises or aimed at national champions.
There is an increase in the creation of temporary consortium companies and alliances for the implementation of specific projects.
Exchange controls can prevent a company from exporting capital and thus make it difficult to finance new foreign subsidiaries. Thus, the offer of know-how can be used to allow the company to obtain a share in a joint venture where a local partner can have access to the necessary funds.
The main obstacle is that joint ventures are very difficult to integrate into a global strategy involving substantial cross-border trade. In such circumstances, it is almost inevitable that problems arise regarding internal and external transfer pricing and export sources, in particular, in favor of subsidiaries in other countries.
The tendency to create an integrated system of global money management through the central treasury may lead to conflict between partners.
Another serious problem arises when the partners’ goals are incompatible or become incompatible.
There are problems regarding management structures and staffing of joint ventures.
Many joint ventures fail because of a conflict in tax interests between partners.