Companies like Anheuser-Busch, Corning Glass, and GM have learned a lot by using joint venture as a mode of entry into a foreign market. Some of their experiences are not very positive. What are the disadvantages of joint venturing?

Question

What will be an ideal response?

Answer 1

Many companies have experienced difficulties, some serious, when working with partners under joint venture agreement. Anheuser-Busch first entered the Japanese market in order to cross the difficult barrier by entering into a licensing agreement with Suntory, the smallest of the brewers in Japan. Although Budweiser became popular, it had a minuscule share of the market. Anheuser-Busch then created a joint venture with Kirin Brewery, the market leader with a 90 percent stake in the venture. Kirin's distribution channel was very helpful, and Anheuser-Busch was able to use some of Kirin's facilities. On the other hand, Kirin gained a lot of knowledge about the beer market globally. The beer market did not increase substantially for Anheuser-Busch, and the joint venture was losing money. Finally, Anheuser-Busch decided to dissolve the joint venture and reverted to a licensing agreement with Kirin. Thus, joint venture does not work in all circumstances and at times licensing works as well. In order for the joint venture relationship to work well, both partners must share rewards as well as risks. The main disadvantage associated with joint venture is that a company may incur very significant costs associated with control and coordination issues that arise when working with partners in another country. Another disadvantage is that of potential for conflict between partners. These often arise out of cultural differences. Corning Glass and Vitro, Mexico's largest industrial manufacturer had a joint venture. Mexican managers viewed the Americans as too direct and aggressive, whereas the American managers believed Mexicans took too much time to make important decisions. Another disadvantage is that a dynamic joint venture partner can evolve as a stronger competitor. GM and South Korea's Daewoo had joint venture to produce cars for the Korean market. GM developed Daewoo's competitiveness, and finally Daewoo terminated the venture since their cars were not allowed for exportation. Thus, all the disadvantages have to be taken into account when entering into a joint venture agreement.