International joint ventures hint of trend toward world economy
Boston — 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.
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.''
For example, even though two Japanese steel companies have announced joint ventures with American steelmakers (and a third is being discussed between Kaiser Steel and Kawasaki Steel), Ms. MacKnight doesn't see a joint-venture trend sweeping through steel.
Howard Love, chairman of National Intergroup Inc. (NII), agrees. There are ''special circumstances for each of us,'' he says. The special ingredients in the NII-Nippon Kokan recipe are a longstanding relationship between the two companies, the particular segment of the steel market that National is in, and the fact that National is one of the most modernized American steelmakers. National wants Nippon's expertise in technology and efficiency to help keep it competitive. Nippon could use an open gateway into a protective US market.
Mr. Love may not envision a string of joint ventures ahead for steel companies, but he does see increased international cooperation. ''I don't think you can compete unless you can compete on a world basis. . . . With this joint venture, we have a partner who knows how to compete on a world basis.''
It's the evolution of a domestic economy to a world economy that is causing business to think about international cooperation. The concept of globalization hasn't come to all business sectors. Mr. Love says it is finally beginning to come to steel. On the other hand, it is already established in such areas as energy, chemicals, and electronics.
Kenichi Ohmae, managing director of Japan office of the consulting firm McKinsey & Co., believes that in the electronics business the market is developing so fast that if companies cannot become a presence in Europe, Asia, and the US all at once, they won't be able to maintain market leadership. International cooperation is the only way to achieve this, he says. ''The formation of global consortia (is important), because no single company can fight this complex game.''
The computer business is ''very close'' to globalization, says Charles Spector, president of Apollo Computer, in Chelmsford, Mass. He says Apollo needs to be in all three geographic markets at once, ''because (the US) has maintained a lead in computer technology, and the rest of the world wants it.'' The world market in electronics ''is so explosive'' that Apollo decided to open its Japan office two years ahead of schedule.
But for the moment at least, joint ventures aren't Mr. Spector's preference. This week, Apollo announced a cooperative marketing agreement with Racal-Redac, a subsidiary of the British firm Racal Electronics. In the marketplace, Racal-Redac will recommend Apollo hardware and Apollo will recommend its new partner's software. Both companies already have a number of these kinds of agreements with other firms. Spector says it's a way to increase research and development and world market share without having to invest a lot of capital or get into the complications of a joint venture. According to Susan MacKnight, these kinds of cooperative agreements will play a major role in developing a world economy.