A Review of Literature on How to Manage International Joint Venture - 2

A of on How to Manage International Joint Venture Successfully - Literature review Example In licensing model, companies planning for internationalization use patent or trademark of market leaders in foreign countries in order to enter in the country. Companies use strategic partnership with existing player in foreign market in order to enter in the country and this partnership is known as joint venture. Ownership ratio in Joint Venture or International Joint Venture is decided in accordance with the capital invested by two strategic partners. Discussion Academic scholars like Griffith, O’Brian and Zeybek (2001) have pointed out that international joint venture (IJV) is one kind of foreign direct investment and they have also argued that in international joint venture (IJV) strategic partners are engaged to develop and operate one common business entity. Other researchers such as Perlmutter and Heenan (1986) have depicted IJV as a functional device to survive in tumultuous global economies. According to these research scholars companies plan for IJV in order to decr ease financial and strategic risks and they have also given evidences to support their viewpoints. Various research scholars such as Gundlach & Achrolhave (1993) have identified different benefits of forming in IJV. According to them IJV provides various benefits like local capital, raw material sources, marketing capabilities, government assistance, technology integration, tax incentives, assurances of imports, decreasing ethnocentrism issues and local currency loans to foreign players. Academic scholars like Reurer and Miller (1997) have pointed out that IJV can help the parent companies to adopt long term performance plans in order to increase average rate of return in investment. Baek, Min and Ryu (2006) have established a valid argument on wealth management issues of IJV and according to the scholar IJV can create more wealth for shareholders of parent firms meanwhile the model also saves skin for parent firms suffering from high leverage or low level of cash flow. Research sch olars such as Koh and Venkatraman (1991) have argued that international joint venture can boost the growth of stock market value for parent company while many other researchers have found that their argument lacks subjectivity. There is negative side of IJV and academic scholars have pointed out that IJV is considered as strategic dilemma for many organizations. Research scholars such as Yan and Zeng (1999) have pointed out that IJV destabilize the business process for many organizations. They have found that stability of IJV model demands change in leadership or ownership model for companies. Academic scholars have pointed out that IJV needs successful integration of strategic change management in order to be successful. Synchronization of change management and IJV is a contingent option for directing the equilibrium of foreign business venture in response to external and internal forces. Study shows that IJV is the systematic profiling of business risk and available strategic vari ables. Research scholars like Eisenhardt (1989) has proposed two theories names as team production theory and agency theory in order to define risk factors associated with IJV model. Agency theory has underlined agents might fail to understand business objective of principle and in such cases objective of IJV might fail. In such cases principals or the parent companies need to use different mechanisms such as monitoring, contract and reliance in order to resolve agency