International joint ventures hint of trend toward world economy
In high school, when a few of the most popular students pick up a new trend, the report almost invariably comes out twisted at the dinner table. ''Everyone is doing it,'' classmates inform their parents.Skip to next paragraph
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Right now, that's the impression the public has of international joint ventures, says Susan MacKnight and some other economists. Deals between General Motors and Toyota or National Steel and Nippon Kokan ''get a lot of attention, and people start to think joint ventures are the new route,'' she says. ''That's not to say they won't continue,'' Ms. MacKnight adds, then she comments more specifically:
''But I don't think all of a sudden the Japanese are going to start forming joint ventures as a primary way to enter the market.''
According to the United States Department of Commerce, the number of international joint ventures set up in this country has dropped from a peak of 49 in 1982 to 38 last year. The most popular ways to plant roots in a foreign market are still acquiring a company, merging with one, or setting up your own offices and plants there, says Michael Goodwin, an economist with the department's International Trade Administration.
The deals, however, are still important because of their size and influence, Ms. Goodwin explains. These are giant industry leaders developing major partnerships with foreign competitors. Their efforts are indications that the ''globalization'' of business is becoming more than just a buzzword.
As Ms. Goodwin defines it, a joint venture is ''a transaction in which two or more parties form a new corporation with each side contributing (capital).'' In the view of management consultants and business leaders, it's certainly not the easiest solution, but sometimes it's the only one.
''If a company could have its druthers, it would try to own a business outright; joint ventures aren't fun,'' says Edward Schwallie, who heads the acquisition and merger services at Booz-Allen & Hamilton, a major consulting firm. ''The only reason companies go ahead is if both partners can offer something quite valuable that the other company can't do alone.''
From what some of the major consulting firms have observed, joint ventures don't have an outstanding success record. Any number of things go wrong. Mr. Schwallie recounts some of the more common ones:
Companies get overburdened with internal negotiations. They can't come to agreement on pricing and technology transfer. Sales forces, used to selling their company's original product, sometimes cannot adjust to the idea that now they are peddling a new product produced with the help of a competitor. And then there are third parties that enter the picture. Company C buys company A and suddenly decides the joint venture between A and B is no longer a priority. Or Company A forms another joint venture with C, a direct competitor of B's. Now B, fearing technology and strategy leaks to C, may not be so friendly with A.
These difficulties have kept joint ventures from becoming the wave of the future. Economist MacKnight argues that the big-name joint ventures are not a result of general trends but of a ''unique set of factors involved in each instance.''