Strategic alliances through International Joint Venture
An international joint venture generally occurs during developing a partnership in several countries from a particular partnership. An organization likes to explore international trade without taking the responsibilities that includes cross-border transactions. In addition, the option of developing a joint venture with the foreign partners is important for the organization. International investors enter into the joint venture and minimize risks that deal with business acquisition. On the other hand, in international business development, performance of due diligence on a foreign country as well as partners have limitations as the risks involved with the business transactions. On the other hand, a joint venture between public as well as private sectors in public-private partnership arises when a contracting authority may need an equity stake in operator of the project. The approach includes several benefits and limitations.
International joint venture aids organizations to develop strategic alliances. It allows obtaining competitive benefits through the access to the resources of partners. It consists of markets, technologies, people as well as capital. International joint projects are practical vehicle in order to transfer knowledge like transferring technology from the multinational expertise to the local organizations (Singaravelloo 2017). The knowledge transfer has ability to contribute for performance enhancement of local organizations. An international joint venture includes the following elements.
- Contractual agreement: An international joint venture is developed through express contracts. It includes single and more than one agreements engaging twp or more individuals or the enterprises, which are entered into specific business purpose.
- Particular limited purpose as well as duration: International joint ventures are developed for a particular business objective as well as have limitation of life span. Taylor and Harman (2016) stated that the projects are frequently developed for limited time as there are complementary activities engages limited assets amounts. In addition, the complementary assets include a limited service.
- Joint property interest: The international joint ventures can contribute cash, property, assets as well as organizational capital for general business purpose. However, the contributions are developed to newly developed business organization and generally a corporation that has limited liability organization or partnership (Al?Mataani et al. 2017). The partnerships have ability in the subject matter as well as assets of the projects.
- Shared profits, losses, control and management: The participants can share a general expectation about the amount as well as nature of the international joint venture (Kandachar and Halme 2017). The objectives of projects have tendency that can be narrowly emphasized and recognizing the assets that can be implemented through every participants represent a specific portion of overall base of the resources.
- General financial as well as intangible goals and objectives: The participants’ share of international joint venture in particular and losses are included in the specific component of management along with international joint venture.
Turner (2016) mentioned that several factors or reasons can lead to the development of joint venture such as risk sharing, economies of scale, market access, geographical limitations, finding limitations and acquisition obstacles.
Risk sharing: It is one of the general reasons for developing a joint venture, specifically in highly capital intensive industries and the industry.
Economies of scale: If a particular industry includes high fixed costs, a joint venture with a big organization of the scale essential in order to complete globally as well as effective way through which the organizations can pool the resources as well as achieve important mass.
Acquisition barriers: When an organization wants acquiring a project, but due to size, cost, geographical limitations and legal restrictions with joint venture is considered as an attractive option (Ortega 2016). A joint venture is less costly and less risky compared to complete acquisition.
Market access: The organizations having lack of primary comprehension of consumers as well as relationship or infrastructure for distributing the products to the consumers is to develop a joint venture with proper partner that can provide instant access to the developed, efficient as well as effective channel of distribution and receptive bases of consumer (Deng et al. 2016). It is significant to an organization for creating new channels of distribution along with detecting new consumer bases. It is not easy, time consuming as well as expense activities.
Factors Driving Development of Joint Ventures
Funding constraints: When an organization is faced with high growth costs and finding proper joint venture project provides essential financing as well as credibility with the third parties.
There are several advantages related to the international joint venture provide organizations with the scopes in order to gain new capacity as well as expertise. They can allow the organizations entering the associated business as well as geographical markets in most of the cases that can allow the organizations making short-term commitments compared to the long-term commitments (Wang 2015). The organizations are provided scopes increasing margin of profits and accelerate the revenue increase and generate and share professionals having unique skills, which will provide advantages to the enterprises.
Several factors can affect IJV such as followed.
- Economic factors: The issues arise in the joint ventures are generally resulting poor planning and the parties engaged in the process that helps to set up. Furthermore, the parties need to pay attention to various analyses in environmental as well as consumers for operating in. In addition, unexpected poor financial performance is one of the financial factors that affect on the projects. It generally occurs during financial performance is poorer compared to the expected for poor sales and cost overruns (Rapoport and Hult 2017).On the other hand, management issue is one of the major factors involved with joint project venture that is not effective in blending the managers, not used to working together. Improper management structure can affect overall performance of international joint ventures.
- Economic environment: The target of a successful joint venture partnership is more consumers as well as stronger body. In order to ensure the partnership that is profitable as well as possible. It assists in looking at them from the viewpoint of customers. On the other hand, the features of partnership should have aim in addressing for effective marketing campaign. Hence, channeling expertise as well as strengths of the parties can be helpful maximizing the value for consumers as well as stakeholders during downplaying weakness as well as presenting a united font.
- Cultures: During formation of a joint venture, blending cultures is leveraging on the strength of the parties. In addition, lack of proper comprehension of cultures of the parties can pose an issue whether it is not addressed. It comprises the issue as well as specific cultural form the parties that are kept on others that are discarded or modified.
The Victorian Government is committed in designing as well as delivering of high quality along with integrated major transport infrastructure in Victoria. The project will transform the way common people move across the city and forward to the first step for ‘turn up and go’ train services. It is a feature of the major cities across the globe. The metro project is considered as the largest investment after CBD rail capacity of Melbourne (Cheshmehzangi et al. 2018).
The objectives of metro tunnel project in Melbourne Metro tunnel project are as following.
- To provide extra capacity on the rail system in order to encounter the requirements of customers, which is one of the major parts of program of investment and encounters projected medium-term demand as well as supports long term development in patronage
- To optimize efficiency as well as reliability of the operations and enhance experience of the consumers through moving towards a metro-style rail system
- To support the long-term plan as well as vision for developing and operating rail network at Victoria
- To enhance access and minimize congestion of tram system in CBD as well as road network in the north, west as well as south-east through diverting travel to metropolitan rail network
- To deliver strong productivity, sustainability as well as liveability advantages through providing a value for money transport solution
- To contribute a safe as well as accessible rail network in metropolitan that has ability to support health as well as wellbeing of the users
The project is one of the metro system that serves Delhi as well as satellite cities of Faridabad, Noida, Bahadurgarh as well as Ghaziabad in the NRI of India. The metro rail corporation limited with equal equity participation from the India Government as well as the Government of Delhi. It is built as well as operated in Delhi. The Delhi Metro Rail Corporation is certified by the United Nations (Sing and Yu 2016). The idea of a mass rapid transit for the metro was emerged from a traffic as well as travel characteristics that has been carried out in the city. On the other hand, the extensive technical studies as well as raisin of finance for the particular project are progressing. The Urban Arts Commission has come up with the proposal to develop a multi-model transport system that includes construction of undergrounded mass rapid transport corridors and augmenting the existing suburban railway as well as road transport networks.
In the phase III of Delhi Metro Railway Project, there is a total of 124.63 Kilometers long network with 85 stations as well as 10 new routes along with extensions were developed. In order to minimize the congestions as well as enhance connectivity, the particular phase consists of 11 extensions to the existed lines and developing two ring lines (Hoang 2018). The phase has 28 underground stations, 11 route extensions and 2 lines that make 167.27 kilometers with a cost of $350 billon. The phase III includes 3 new lines in Delhi Metro System. The work was started in 2011 and ended in 2018.
Advantages of International Joint Ventures
EastLink is considered as the largest road infrastructure project in Australia. There are nearly 1.6 Kilometer tunnels, 88 bridges and 17 major interchanges were developed in the project. It generally relies on the motivated as well as working safely. EastLink project was delivered as the project of Build Operate Transfer with the direct tools through multi-lane free-flow tolling system using 13 tolling gantries. The preparation of environmental management practice can led the specific way in the major projects (Sanda et al. 2016). On the other hand, the early preparation of the project was awarded to the particular contract. In addition, appointment of the Site officers to the management plan that is awarded in the contract. It includes review of external stakeholder as well as comment. The process was developed and gave a key delivery responsibility.
There was nearly $2.5 billion of the East Link project needed more than 7 million cubic meters of the process of excavation along with earthquakes. In addition, there is nearly $100 million per month cost was spent on the process of construction of the particular project. Outstripping the turnover levels, the project sets nearly 4119 tones asphalt laid per day. On the other hand, there were nearly 22,000 items were fabricated for built purpose and precast facility in the valley. It includes nearly 1650 bridge beams and 4630 barriers as well as parapets over 15,000 precast noise (Prashantham and Madhok 2017). The project was delivered as the form of Build Operate project with the direction tolls through multi-lane free flow tooling system using 13 tolling gantries in the direction. The project was focused on the performance as well as specifications.
The project is a joint venture where National Highway Authority of India and DS Construction are the stakeholders in the project. The cost of the project is approximately 10 million INR. The length of expressway is 27.7 kms where the number of flyovers and overpass are 11. In addition, there is 32 lane state of the art plaza are situated (Kim and Choi 2018). In addition, CCTV surveillance till IGI Airport and SOS telephony every 1.5 kms are there. However, the primary issues in the project are congestion of traffic and safety of pedestrians.
The issues of the government resources as well as capacity in order to encounter the requirements of architecture are included in the project. The resources are not capable keeping up the process with increasing demand for the social products. In addition, rapid development in economy and urban population as well as increased migration is included in the process. However, there are greater efficiency in the process (Xue and Mason 2017). On the contrary, there is no model of concession agreement for reference that could prop up the project. The capacity of highway miscalculation and no previsions augmentation in the next 20 years need to be considered in the project. Analysis of the case studies
The Delhi metro project was a large and complex project was a large and complex project to manage. Although the joint venture is a great and effective ways to manage large and complex project as it help to exchange ideas, technology and the required expertise to successfully lead and complete the project (McAllister et al. 2015). However not all joint ventures are means to be successful. There are several issues that need to be identified before the project is thrown out of its scope.
The case study of Delhi Metro Rail Project has analysed properly to identify what was the problem regarding the joint venture. The issue regarding the joint venture identified is the misalignment on the venture strategy. It is expected as the projects heads of two venture has significant difference in mindset. The shareholders were moving in complete different direction. As a result there was strategic conflict even before the project was initiated. The conflict in the strategy results in joint venture management that is also conflicting in nature. This conflict was prevailed in this joint venture (Olatunji et al. 2016). The JMC wanted local strategic partnership whereas the China Harbour Engineering Company Ltd. (CHEC) was not ready for that as according to CHEC, it will create issues in the project ownership. Hence a significant time was wasted in the overcoming the internal owner differences in this case. Hence the project find it difficult to make real time decision whenever required. This is a classic case of joint venture issues when two venture denies to submit to each other decision that gives rise to conflict.
Solution:
In order to avoid this kind of conflict, it is recommended to consider some novel yet powerful action in the deal phase itself. It might possibly include the consideration of strategic partner due diligence (James et al. 2016). Another option is to consider misalignment scenario planning. It will help to reduce the frictions and test solution. It will also help to structure the scope and provide exclusive provision to define the space for the joint ventures to work independently yet adhering to each other. However to increase the efficiency for the planning it is recommended that during the launch of the planning it is important to appoint the board senior executives from both the venture (Ibem et al. 2015). It is also recommended to hold annual board meeting to define the offsite strategic planning and define process to handle the misalignment whenever they appears.
Eastlink Freeway Project, Melbourne by Department of Transport & Connect-East (JV)
The problem for the joint venture was the “over-satisfying parent needs and requirements”. Here the Melbourne by Department of Transport was not very well in establishing the authority over the project and put more effort in satisfying the need of the other owner of the venture which is the Connect-East (Luebeck and Petrov 2018). Hence the size of the committee was significantly large and complex. Any decision regarding the network connectivity, purchasing, customer relationship was delayed as well. Even the chairmanship needed to be spread out just to keep everyone happy around the project happy. However it had to deal with the satisfaction of every owner request and in this process the focus of the project is often shifted and it often focuses on something that is not realistic at all. This has an effect of delaying the project and increase the cost of the overall project.
Solution:
In order to avoid such situations it is recommended to promote collaboration and balance. Hence when the deal was being formulated it should be made clear to the partners that both of the partner should be liable to pay the joint venture cost for meeting the individual request. A set of guideline principle should also be developed to clearly specify what the parents can do and what is not allowed to be done (MacKinnon et al. 2018). When reviewing the parent request it is required to appoint independent Board Director for injecting an impartial voice to review the parent request. The tracking of the project should also be done formally and then it should be reported to the board. The reporting should also include aspects like the nature, timing and the cost. The report should be provided to respond to the parent request for proper support.
The Metro Tunnel Project, Melbourne by Melbourne Metro Rail Authority (MMRA) & Cross Yarra Partnership consortium (JV)
The major problem in this case was the cultural clash between the joint venture. These was a cultural clash between the two ventures. Hence the ventures were not successful in working together properly and effectively. Both the partners were not even concerned to appreciate the positive things about the culture inside the joint venture. There was an ethical clash between the two ventures as well (Ince et al. 2016). Although the Cross Yarra consortium was a popular project partner and also had the required experience, hence it was not a problem for the project. However the two parties had significant difference in the ethical viewpoint. Cross Yarra consortium did not consider environment safety an important issue in the construction and carried some activities that was not complied with the environment safety and regulation rule of the Australia for which the project has to be modified accordingly (Shen and Power 2017). Although the cultural and ethical difference might not seem an issue when the contract is signed, it might impact the project which was the case in this joint venture.
Solution:
When the venture is signed it is recommended to review the organization structure for each of the partner and this should be done for both the partner. It will help to assess both the partner that what should be expected from each other and it will create clarity between the partners. This kind of clarity is very important when the project is intended to be completed in joint venture. Hence this an important step for the joint venture project.
Delhi Gurgaon Expressway Project, India, by National Highways Authority of India & DS Constructions (JV)
The problem that was identified in this context was the staffing of venture. The project has tried to involve functional managers from both the partner venture. Hence it become really difficult to take financial related decision. Managers of the international joint venture not only has the communication problem which arise as the result of language barrier, there is possible to have the different view (O’Faircheallaigh and Ali 2017). This might affect the formation of the effective and cohesive management team.
Solution:
Hence before the venture is started it is recommended to review the difference that might come with the style of functional differences which might be due to the style of functional management between the two ventures and there should be scope for to allow that variation two integrate the two different style into the project. This project or the venture did not considered that and that is why differences arose in the project which delayed the project progress. Hence this kind of review is very important before starting the project with the joint venture and each partner should be adhering to the review and the strategy made on that.
Conclusion
From above analysis, it can be stated that there are several benefits of international joint venture like public party can exercise some degree of control over the operations and take decisions. In addition, transparency in terms of accounts as well as finances presented to the board, public perception, sustainability and share of profits can be obtained in Joint Venture between an International Developer and Government Agency. However, the limitations cannot be avoided. In built conflict of the interest between the public parties. The projects are paid out due to sub-contractors will require watching out as well as ensure that it has veto rights over liabilities that is taken by the project organization.
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