“Firms prefer joint ventures to go global” is a contemporary approach. This is extraordinarily profitable and advantageous to both the parties. It has no edge to collapse until and unless the internal, political situations are stable and sustaining for the business to grow with a high pace. Many local markets or businesses are misusing this concept. The irremovable corruption and some regional ethnic groups lead the joint ventures to failures.
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Many examples are spreading around the world. The post-disputed countries are facing double pressure; the loss of law and order plus the reduction of concerned investors. Both of these two factors show the way to the collision of economy, because, for investors, it is neither easy to enter nor a good idea to exit rapidly.
Risk Factors to Focus
In order to determine the long-term business opportunity in the approaching country, the initiating firm must first assess the country’s political risk and stability conditions. There is a list of questions that must be answered before hand while investing. Therefore, the possible risks should be known.
- What is the stability of the government?
- What political system is followed in the country; democratic or dictatorship?
- Will the new government shift the business rules spectacularly?
- What is the level of government’s involvement in the private sector?
- How transparent the government’s political, economical, and legal decision making process is?
- Will a well-established environment for the business be provided?
So many more questions to analyze, though any country can provide a satisfactory response while replying to these. But, in fact, government has the major role in keeping the political stability with the intention to attract the maximum foreign investment inside the country. Businesses necessitate open and free market space to enhance it in any profitable direction.
Failure of Joint Ventures
Behind a single joint venture, lies a huge amount of calculations and measurements to sum up maximum profit and minimized risk. It is not as easy to initiate a joint venture as it might look to general public. Therefore, a failure means a lot to the parties participating. A view of any country regarding capitalism or planned economy system matters too. Since the capitalism is controlled and owned by the private sector. Whereas, the planned economy is run directly by the government or state holders. They are responsible for the production as a whole. Traditionally, capitalism is supported by the democratic government, on the other hand, authoritarian system finds state-controlled approach better while organizing and administrating the economy.
Any international joint venture (IJV) takes place when two or more countries, based on the same business, form a partnership plan. They might invest in each other’s country or in any third country but same or similar business sector. A country can choose to stay away from all the cross-border activities of trade, without taking any responsibility by such international joint ventures.
A very relatable example of failed international joint venture is the “Korek Case”. In 2011, French telecom ‘Orange’ and Kuwaiti firm ‘Agility’ set off a joint venture out of their countries with the expectation of expanding the company’s profile. This joint venture was constructive for Iraq as it was to invest in the Iraqi telecom ‘Korek’. However, the shareholders were involved in an illegal loan secured but neither accepted nor revealed the truth. This was totally out of France’s and Kuwait’s consent.
Corruption is a root cause to many germs spreading in shape of the losses a nation faces. Due to such dishonest and awful public representatives or shareholders, companies are forgiving their good fate. It is not merely a failure of a joint venture but a huge disappointment to the country’s economy.