MKT630 GDB NO 03 Solution June 2011

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SOLUTION MATERIAL

WHY JOINT VENTURES FAIL

Joint ventures fail for many reasons. In addition to those mentioned above, other factors include: disappearing markets, lagging technology, partners' inability to honor the contract, cultural differences interfering with progress, or governmental and macroeconomic de-stabilizing factors. However, many of these reasons can be eliminated with careful planning.

Inconsistent government interference is a difficult problem to overcome. For example, the United States government has long maintained restrictions against exporting certain technologies to selected foreign countries, such as those utilized to produce jet engines and computers. These restrictions place American companies at a competitive disadvantage, since other countries do not place similar constraints on their businesses. Thus, American companies are unable to engage in certain joint ventures.

Companies that engage in military-oriented joint ventures are often subject to unanticipated risks. The federal government may allocate funds for the production of certain weapons, sign contracts with manufacturers, and then discontinue the project due to changing needs, budget restrictions, or election results. Such government actions are a common risk to these joint ventures. They introduce an element of insecurity into the projects, which is something that partners try to avoid as much as possible.

Another problem with joint ventures concerns the issue of management. The managers of one company may be more adept at decision making than their counterparts at the other company. This can lead to friction and a lack of cooperation. Projects are doomed to failure if there is not a well-defined decision-making process in place that is predicated on mutual goals and strategies.

For example, if two auto manufacturing companies engage in a joint venture, it is imperative that they be similar in their structures and approach to business. If one company relies heavily on nonunionized workers who operate in an autonomous team-building environment, and the other comprises a unionized workforce oriented toward assembly line production in which workers specialize in narrow tasks, the chances of success are poor. The workers at the first plant would be prone to making decisions and solving problems on their own, which would reduce the levels of bureaucracy needed to manage production. Conversely, the workers at the second plant would likely defer to higher-level managers to make decisions. The differences would be difficult to overcome and would lead to higher costs and slower production. While the differences could be alleviated through planning before the actual manufacturing process began, the time expended might lead to technology gaps and other impediments to earning a profit. Most companies engaging in joint ventures would prefer not to deal with such problems after a project was implemented. Rather, they aim to eliminate them through careful planning. Doing so increases profits in the long run, which is one of the many benefits of successful joint ventures.