"Balancing the Partner's Contribution" - Analyzing the Risks and Benifits in the case of an Indian Joint Venture.
[Dissertation (University of Nottingham only)]
Joint Venture is used as it has the tendency to evolve where there is a need to implant hierarchy to enable future strategic decision-making in cases where single firm alternatives are inferior or prohibited. (Kay,N.M. 1997)
A Joint Venture can be defined an agreement between two or more firms, leading to the establishment of a separate legal entity. The firms may be held responsible for their own individual tasks for which they have special expertise, knowledge or past achievements. For instance, a new firm might be responsible for supplying inputs for a subset of the firms, conducting research and development activities or downstream activities such as marketing and distribution of the products. The participants in a Joint Venture agree to share capital, human resources, risks, profits, technology that may be needed for the formation of the separate entity under shared control. Fuji-Xerox is an example of a successful joint venture.
The Post World War II diversification strategies of large corporations and the existence of globalization have led to a rapid proliferation of strategic alliances. The presence of an increasing number of alliances between firms is especially felt in the case of developing countries. Countries like India and China now provide the best examples for alliance strategies that result in a Joint Venture, or in Business Process Outsourcing, Mergers etc. as these countries stand on the cusp of explosive growth.
Thus, I take the opportunity to analyze the potential risks and benefits for the partners of a joint venture and evaluate how they can deal with the delicate issue of balancing their individual contributions into the alliance with their returns from it. I will analyse the case of an Indian Joint Venture involved in textile manufacturing, where I have previous work experience for almost 3 years. This Joint Venture consists of 3 main participant firms who shere the same general cultural background (that is, they all belong to the same nation, namely, India) but who might have differences in terms of their individual objectives and expectations with regard to the alliance. This research will, therefore, mainly reflect on whether all partners benefit equally from their participation in the common venture and highlight a number of potential limitations and factors that might determine the success or failure of the Joint Venture.
In analysing the case study, I will particularly emphasize the limitations as they may relate directly to the the failure of a Joint Venture. It has been estimated that one fourth of all joint ventures last less than 3 years and the average life span for such cooperative alliances is about 7 years. Several studies have reported failure rate as high as 80 percent, failure that usually leads to their dissolution or acquisition by one of the partners (Gulati et all, 1994). Many researchers have mainly stressed the drawbacks which relate to International Joint Ventures, and highlighted factors such as Cultural Differences, Language barriers, Political Uncertainty and Instability etc. In order to differentiate my study from the mainstream, and to provide an original contribution I have chosen to highlight the difficulties and limitations that are further involved and exist in a national Joint Venture. In my research I would like to highlight the key topics of trust amongst the partners, their motives and their processes of partner selection as the literature on Joint Ventures indicate their relevance for the maintenance of a sound balance between partners' contributions and returns. Moreover, the shifts in partners' bargaining power which might emerge during the life of the Joint Venture and may cause insecurity, thereby undermining its probability of success, is another critical aspect that I would like to incorporate in my study.
Reseach methodology: The Case Study
According to Fitzpatrick (1998), in order to contribute to understanding complexity, researchers have to choose from a range of possible methodologies and cast aside entrenched theoretical & ideological positions. For my research I would like to adopt a fundamentally qualitative research method. Quantitative research methods are, in fact, useful for answering questions like how many, how often and how much. Moreover, qualitative research methods are useful in understand peoples' behaviours and their attitudes. Qualitative research methods would provide a more in depth analysis and make the research more meaningful by assisting me in better understanding the motives of the joint venture under study and the reasons of its failure.
As previously stated, I will be analysing the case of the alliance strategy of a textile manufacturing company in India called Avis Industries (P) Ltd.* This organisation has textile manufacturing units in the cities of Mumbai and Surat and markets its product throughout India. The company entered into a Joint Venture with one of its main buyers and formed a separate entity called Avis Impex (P) Ltd. This particular Joint Venture lasted for little more than a year after which the partner who was initially the buyer opted out and started a competing parallel firm called the Lotus creations (P) Ltd.* in the field of manufacturing. Lotus creation (P) Ltd. had gained all its knowledge about the production process, the suppliers and the buyers in the industry through the participation in the Joint Venture, and therefore this case appears to be particularly suited to the study of the problems and risks associated with the need to maintain a balance between partners in a Joint Venture in terms of their respective contributions and returns.
The research will involve a mix of primary and secondary sources. My main source of primary data will my own experience and contact with the firm constituting the case study. Since I was working in Avis Industries (P) Ltd., I will use my detailed knowledge of that company and past experience as a participant observer in the firm and its involvement with the Joint Venture. Also, data will be collected through interviews with the directors and executives of the firm. This will enable me to understand the complex circumstances under which the manufacturing firm entered into the Joint Venture and also the circumstances leading to the venture being dissolved in such a short span of time.
Secondary sources for my research would be equally important. Sources such as books, journals, past researches and dissertations, financial and economic times, electronic database, company reports and agreements or contracts (if available), and various search engines and meta search engines will be useful for me to outline the key framework within which my research will be conducted. It will also be useful in successfully analyzing and interpreting the primary data in the most appropriate manner.
The reason alliances are formed at all is that most participants expect to get better payoffs than they would without the alliances (Gulati et all,1994). The main aim of the research is somewhat similar to the above statement i.e, to determine whether all partners benefit equally by participating in a Joint Venture.
In context to the above, I will try to address to following pertinent issues through my research:
a) Understanding the concept of Joint Venture- its evolution and benefits
b) Analyzing the case of Avis Impex (P) Ltd.
c) To understand the keys issues such as partner selection, trust and motives behind entering into a joint venture.
d) Limitations involved in the joint Venture.
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