Creating and Managing International Joint Ventures

By Arch G. Woodside; Robert E. Pitts | Go to book overview
literature reviewed earlier, a number of success criteria can be identified for negotiating joint venture agreements in ex-centrally planned economies (see Table 5.4).The establishment of clearly defined joint venture objectives is a necessary prerequisite for successful negotiations. Both the UB and APV deals had clearly stated objectives covering the Hungarian market and the role of the joint venture in the groups' overall European strategy. More significantly, there was flexibility in both agreements allowing for an evolution over time in the product and market strategy of the Hungarian operation and for the continuing upgrading of technology and management transfers. In the Thorn-EMI deal, major conflicts arose between the partners over strategic objectives.Partner selection is a major determinant of joint venture success. In both the UB and APV deals, there was a clear strategic fit between the U.K. and Hungarian partners. This was not the case in the Thorn-EMI deal where the strategic objectives of the partners diverged.According to Harrigan ( 1984, 1985), the outcome of joint venture negotiations is determined by the relative bargaining power of partners. Both UB and APV were in a strong bargaining position due to their control over technological know-how and the fact that they were operating in industries identified by the Hungarian authorities as "priority" sectors. Neither company, however, abused this position, being very willing to contribute to the economic development goals of the country through technology transfers, etc. Thorn-EMI was in a less powerful position given that it was negotiating with a government Ministry rather than the market-oriented State Property Agency.In conclusion, the key to successfully negotiating joint ventures or acquisitions in Hungary is the ability to cultivate good relationships with the authorities and venture partners. The way of achieving this is to match the requirements of the country for foreign currency, modernization, technology transfer, exports, and so on with the need for efficiency and profitability of the joint venture itself. While the latter must remain the ultimate goal of any deal, it will only be possible with sensitivity to the development needs of the host economy.Political and economic reform in Eastern Europe will continue to create joint venture opportunities for Western companies. The success of these ventures, however, is by no means guaranteed and requires careful planning, negotiation and management.
APPENDIX 1: OUTLINE OF MAJOR ASPECTS OF A JOINT VENTURE AGREEMENT
The following presents a comprehensive list of factors that could be included in joint venture agreements. It should be pointed out, however, that all of these aspects do not necessarily apply to every joint venture agreement.
1. Purpose and character of a joint venture:

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