Where A Joint Venture Is Advantageous

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here a joint venture is advantageous

The circumstances in which a joint venture might be advantageous arise:

1. When a small company wishing to enter a foreign market lacks the capital, manpower or marketing skill to do so on its own, but in exchange can offer technical ability.

2. In a country where total foreign ownership of a company is not permitted, and this method is therefore the only alternative to selling through Affiliates or distributors.

3. When it will qualify for preferential treatment given only to companies owned, wholly or partly, by nationals. Such preference may take the form of a generous allocation of foreign exchange, government contracts, the speedy installation of utilities or construction of buildings, development grants and subsidies.

4. Where the political environment is such that it is desirable to have a native partner in order to enjoy some degree of protection against the vicissitudes of government policy. These may occur not only with a change of administration, but also during the tenure of office by one party over a long period.

5. . If a company is perceived to be losing its grip on a market through under-capitalization, poor quality products or any other weakness, if its goodwill still exists, another company might be able to build on the former's established reputation by providing the very qualities needed to rescue it.

6. When a manufacturer has spare production capacity and seeks rapid expansion into a foreign market. A joint venture with a company already marketing there would save the time needed to set up a new marketing organization.

7. To surmount tariff barriers or to take advantage of membership of such communities as EEC, EFTA, LAPTA.

8. When a company operating overseas wishes to involve local management in the fullest manner. A joint venture could provide a greater degree of independence and participation than a branch or subsidiary.

9. To provide the most attractive incentive to a partner to exert his best efforts, e.g. when it will encourage him to match the first party's technical or financial contribution with his own production or marketing skill; and, in an international joint venture, call on his national pride.

10. As the only way to make good an otherwise unfillable gap in the overseas strategy, i.e. opening the door to a foreign market by local partnership in assembly, warehousing, or after-sales service.

11. When manufacturing overseas is the cheapest way in which to supply other markets.

12. When, for maximum profitability, an individual market or a group of markets must be operated in isolation.

To the small company there can be particular appeal in a joint venture with a big company as partner, particularly in an overseas market. This is because it is not necessarily the partner with the most to offer that obtains some of the greatest benefits. By being integrated with a global plan, the smaller partner inevitably shares in the financial profitability of, and acquires knowhow from, the marketing operations of its bigger partner.

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