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Companies International Alliance: International Joint Venture

881 words - 4 pages

Introduction
In the past two decades, international alliances have become a central part of companies’ competitive and growth strategies (Kale and Singh, 2009). However, alliance termination rates are reportedly over 50% (Lunnan and Haugland, 2008). This paper aims to critically examine the reasoning behind the low success rates of International Joint Ventures (IJVs).

Definition
Glaister, Husan and Buckley (2004, p.1) define the IJV as “two or more legally distinct organisations (the parents), each of which invests in the venture (the child) and actively participates in the decision-making activities of the jointly owned entity”. The authors contend that the entity is international when ...view middle of the document...

Partner learning occurs when partners jointly enter a new business area and develop new capabilities, without intending to. Airbus is an example whereby its member firms specialise in the design and manufacture of specific parts of the overall aircraft.

By definition alliances involve collaborative activities by two or more firms, and so if parents do not transfer knowledge to the new alliance entity, it has little reason to exist as a collaborative vehicle (Inkpen and Tsang, 2007). Reluctance to learn and teach partners is often a major reason for termination of alliances, frequently fuelled by withholding patents and copyrights by the dominant partner.

International alliances struggle where geographic distance and cultural differences generate additional challenges for managers (Osborn and Hagedoorn, 1997). Culture reflects the ideas, values, norms, and meanings shared by society (Hofstede, 1980). Hence, complications arise when knowledge is transferred across dissimilar cultures (Bhagat, Kedia, Harveston and Triandis, 2002). As effective communication is a precondition for learning, failure to speak the same language has a negative impact on learning and causes termination (Inkpen and Tsang, 2007). An important precondition for success is the learning partner’s recognition of the intent to learn (Goold, Campbell and Alexander, 1994). Tsang (1999) argues that within strategic alliances formed between developed country firms and emerging market local partners, the developed country partners have little motivation to learn specific management and technological skills from their local partners.

Stability
Maintaining a stable IJV structure is a complex, dynamic process (Jiang, Li and Gao, 2008). Many factors can cause fragility. An asymmetry in the provision of capital or non-capital resources by one partner (Yan and Gray, 1994) can lead...

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