International Joint Ventures

AR50126 appellation denote Mizanur Rahman In submitting this assignment, I certify that all this material is my own work, except where I perk up indicated other(a)wise with seize references. 0. 0 0. 1 Report on the Sandford Joint Venture in East Timor Date 30th family 2011 For George Jackson From Mizanur Rahman 1. 0 Executive Summary Freemantle Construction kick the buckets in a domestic environment against ever increasing competition in a saturated market, trying to maintain market sh be during economic downturn.In contrast Sandford has a strong world-wide presence in the hotel/leisure industry and is looking at diversification to improve their matched wages and compliment their current offerings. The opportunity presented by this Joint Venture (JV) go forth assist both Sandford and Fremantle in entering a new market. It lead be challenging mainly because of the fact that both firms are from contrary industries and may have different goals/objectives along with differin g management styles.Furthermore, the JVs first digest is situated in the Democratic Republic of Timor Leste (DRTL), which ordain have its own complexities to contend with, be it g overnment/business policies or technology/skills shortages etc. The JV go out have to consider a decision qualification processes throughout the partner in crimeship, which could be difficult, with each firms involve maybe being different. For a successful JV, the partners necessity to be honest, trustworthy, committed and focus on what leave behind be best for the JV rather than on their own take.Beamish (2008) quoted that firms enter JVs in couch to create new crossings/ escape and enter new/foreign markets. This is the observe benefit to this JV, whilst in that respect are many attempt factors to consider, the rewards go away possibly outweigh this moreover only if all the obstacles and opportunities are correctly valuateed and an appropriate scheme is concur and implemented. 2. 0 Introduction This report was commissioned by Mr Benny Garstead. The objective was to recommend an appropriate diversification Strategy and come upon Opportunities and Obstacles that will be encountered by the Sandford & Freemantle JV in the DRTL. paginate 1 of 8 AR50126 Assignment Name Mizanur Rahman 3. 0 3. 1 Diversification via JV What do of JV Prior to engaging in a Diversification scheme both firms will have to agree on the emblem of JV to be implemented for this project, incorporated where profit/loss is overlap against an agreed parting, or non-integrated where profit/loss is not shared. The benefit of an integrated system is that it requires capital investment from all partners and this signifies commitment and dope promote the chances of success.These decisions along with objectives and how to manage the JV will have to be agreed prior to engaging the JV. Pearce (1997) indicated that JVs can become very demanding if the partners have differing objectives. The reason s crumb the JV are simple, both parties contribute to the overall scale/skills pool, consequently being in a dapple to penetrate new markets. further local knowledge in respect of the newly formed DRTL will be wishinging. This gap will need to be filled, possibly with local partners/advisors if the JV is to be successful. . 2 Diversification Theory Ansoffs (1965) bringing close together of diversification (see matrix below) highlights that this is when firms enter new markets with new products. The new product here is the combined offering of both firms, in a all told new market. Berry (1975) alternatively states that Diversification is an ontogeny in the chassis of industries a firm is active in. There are numerous other definitions, but in essence it is based on relish for gain, by expanding a firms animated offering with other products/services etc. which can be directly or indirectly cerebrate to current offerings or be completely unrelated. The notion that this JV needs to be identified separately from both firms existing operations, by extending, could improve competitive receipts by providing focus in a niche market, where one service compliments/leads on to the other and thus being able to provide a tailored/ fundamental solution to the DRTL, where many international/domestic firms will be vying for the selfsame(prenominal) business. Page 2 of 8 AR50126 Assignment Name Mizanur Rahman 3. 3 wherefore Diversify By integrating into related markets (related diversification, infrastructure hotels/leisure = revenue enhancement from building & tourism), Freemantle can enter into another market, which could boost their current position and secure cash flow to survive the current downturn. Rather than downsizing, they could potentially increase their turnover, albeit growth not necessarily means more profit. Sandford will as well as greatly benefit by being able to balance Freemantles offering by following on with the required tourism facilit ies. This type of synergy is called Horizontal Diversification.A diversification strategy is simply a growth strategy and in this instance could be seen as differentiation. Porter (1985) states in his Generic Strategies, firms looking for competitive advantage through differentiation must consider the additional cost incurred in re-branding, promoting etc. and the chances of recovering these, also the method is not crotchety and could be replicated by other competing firms. On a positive tonus Rumelt (1982) developed, from earlier studies of Chandler (1962) and Wrigley (1970), categories for various diversification strategies nd from this, related diversification on average outperformed other diversification strategies. Furthermore, it was found that these firms had a natural advantage by expanding their skills into related areas. In general drivers for Sandford & Fremantles choice to diversify would be based on i. ii. iii. iv. v. Sandfords desire for growth Freemantles need to es cape a stagnant market Both need to acquire the skills in the construction/tourism sector Both desire to spread risk Both desire to access a utter(a) market 3. 2. 1 Advantages & Disadvantage The principle advantages for this JV are ? ? ? ? ? An increase in value/wealth to the firms, which would not be possible on their own. Economies of scale would be increased, assisting entry into the new market. Construction costs for Sandford would decrease. Economies of scene can be exploited by Freemantle delivering the required infrastructure and whence the related tourism/leisure facilities. Provides movement away from declining activities for Freemantle. Spreading risk from interests in one area, as well as the risks involved in international JVs (IJVs). The Principle disadvantages could be ? ? Slowing growth in its amount business, if focus is shifted. Potentially would add to management costs by implementing a separate team to run the JV. Loss could be incurred during market integrati on process subjecting in some parts of the business being subsidize by other profitable parts. Page 3 of 8 AR50126 Assignment Name Mizanur Rahman ? ? Diversification across national boundaries could result in the firms having to choose with varying governmental/ reasoned requirements of the different countries in which the JV firms have controlling interests.May result in failure when there is a mismatch between core competencies/ reckons. Freemantles lack of international experience and Sandfords lack of local knowledge/influence. 4. 0 4. 1 Obstacles and Opportunities for the DRTL project Virgin Market The DRTL is a diverse country ecologically and culturally due to its multitude of linguistic and ethnic inhabitants, built up over its history from settlements to colonisation. The DRTL have to deal with many critical issues from the lack of infrastructure, as virtually everything will have to be rebuilt from ruins left from the war.Despite the lack of facilities and the major ta sk ahead, according to Moghe (2001) the success of the country lies with proper infrastructure, security, efficient indemnity and the ability to obtain clients and investors feel that they are on achromatic territory. One point to note is that there will be mass influx that will occur from foreign firms looking to ictus some market share during construction, along with the firms that will remain and operate businesses (i. e. hotel/leisure and tourist facilities).Aditjondro (2001) criticised this, as it would force the DRTL into a new form of colonisation, an economic one, thus resulting what could be viewed as simply an outpost for globalisation. 4. 2 worldwideisation Society today is very global and thus making our domestic markets more competitive. This encourages firms to venture across international boundaries in fellowship to offset seasonal fluctuations (i. e. construction during winter periods) through increased opportunities and last be spreading their risk across var ious options.The choice to go global has many risks and potential obstacles to consider from cultural/language barriers to economic, legal and political risk. Cartwright and Cooper (1996) underline that compatibility issues may arise from IJVs due to differences in national culture, managerial styles. The proposed JV provides a gateway for international expansion, which maybe a comfortable area for Sandford but Freemantle need to fully assess their capability/competence in a foreign market by fully assessing the risks. 4. 3Risk Bettis & Hall (1982) successfully demonstrated the plug into between risk and reward performance and diversification strategies. In their strike they calculated return on assets to measure risk and reward performance. The result found a negative risk Page 4 of 8 AR50126 Assignment Name Mizanur Rahman against return for related firms, which suggested the opportunity to simultaneously put down risk and increase return. However, a detailed risk/reward summar y needs to be conducted to ensure that the JV is not affected by any change.Areas for consideration (UK & USA v DRTL) Culture Currency preservation Government Legal Labour linguistic process Marketing Transport applied science Homogeneous v Heterogeneous Uniform v Uniform (? /$) relatively Stable v Variable & unpredictable Stable v perchance Unstable Free movement of goods v possible legal restrictions apt workers available v Impossible to source Generally Single Language v Different Languages/dialects Many media streams with little restriction v few media Several competitive options v inadequate Latest v overagedAn appropriate level of competency/ability and motivation is required amongst the staff, for a firm to operate effectively on the international scene. The varying strengths and impuissance of both firms skill base would need to be fully analysed, in order to compile a competent/ undefended team. Thus providing a balance of all necessary attributes and improving the c hances of success. 4. 4 Corporate Social Responsibility (CSR) DRTL is one of the poorest countries in the world. The country will still be very fragile and under the watch of the UN. withal the population may not trust outsiders as they have repeatedly been under forced control, so gaining trust for a successful JV will be imperative and thus a robust CSR policy needs to be agreed and implemented. If the CSR policy is not followed, the firms image be ruined, causing failure abroad and potentially backside home. The JV cannot claim to be an ethical setup if it ignores unethical practices tie in to its operations e. g. ? ? ? ? Use of child labour and forced labour intersection that effects the livelihoods of indigenous people Violation of the basic rights of workers Ignoring health, safety and environmental standardsAn ethical business has to be concerned with the behaviour of all businesses that operate in the supply chain i. e. ? ? ? ? Partners Advisors Suppliers Sub-contractor s The sticking point is if any of the above is required to be ignored, either to progress the project or to make profit. The decision needs to remain ethical to maintain long stipulation success. Page 5 of 8 AR50126 Assignment Name Mizanur Rahman 4. 0 last The capability/capacity of the existing construction industry in DRTL, analogous many developing nations, will be in its infancy ( man Bank, 1984 Kirmani, 1988 surface 1986).For success local knowledge will be a necessity. Although there are several strategies available for IJVs, diversification strategies provide firms with high growth potential in international markets (Capar and Kotabe, 2003). Diversification may be a fast track growth solution but if an appropriate strategy is not applied and the management fail to understand the JV, then dependable financial impact is inevitable not only to the JV but also the parent firms. Available competencies and capability need to be assessed also the product that is being provided needs to have resonance with the new market. thus extensive research rather than internet based research needs to be conducted at ground zero. Are the firms ready for an IJV, or are there skills gaps that need filling? 5. 0 Recommendations The recommendations are, but not especial(a) to 1. Conduct a thorough PESTEL analysis on the DRTL situation. 2. Conduct a SWOT analysis of the JV in DRTL. 3. Agree on the percentage level of profit/loss sharing for an integrated JV. 4. Agree the JVs Objectives, finale Making Protocols. 5. Review competencies and capabilities of senior management and assemble the correct team. . consume a CSR policy. 7. Network with DRTL decision makers and appoint a local partner or advisor. 8. Engage with the community. Once the above has been achieved then the JV can start prospecting for work. (2020 24 Citations = 1996 words) Page 6 of 8 AR50126 Assignment Name Mizanur Rahman Bibliography Aditjondro, G. J. (2001). East Timorese becoming guests in their own land online. Indonesia capital of Indonesia Post. Available from http//members. canb. auug. org. au/wildwood/febguests. htm Accessed 27 phratry 2011.Ansoff, H. I. (1965). Corporate StrategyAn Anylytical apostrophize to business policy for growth & expansion. New York McGraw-Hill. Beamish, P. W. (2008). Joint venturing. Charlotte, NC Information get along Publishing. Berry, C. H. (1975). Corporate Growth and Diversification. Princeton, NJ Princeton University Press. Bettis, R. 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Page 7 of 8 AR50126 Assignment Name Mizanur Rahman Scullion, H. 1992), Strategic recruitment and phylogeny of the International Manager Some European Considerations, Human Resource Management Journal, 3, pp. 57-69 UN (2010). East Timor Country Brief online. Australia. Available from http//www. dfat. gov. au/geo/east_timor/east_timor_brief. html Accessed 25 September 2011. Wild, J. J. , Wild, K. L. & Han, J. C. Y. (2000). International Business an Integrated Approach. New Jersey Prentice-Hall. World Bank (1984). The construction Industry Issues and Strategies in developing Countries, Washington D. C. World Bank. Page 8 of 8