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In the contemporary society, many multinational enterprises would like to use joint venture as their favorite entry mode due to its unique advantages, such as: directly access to the local partner’s knowledge, sharing development costs and risks. Meanwhile, it is important to figure out the factors that will cause failure of joint venture. Generally, 3 major factors: culture difference, poor leadership and insufficient planning which are all fatal to the operation of joint venture. Cultural differences have direct influences on international joint venture performance through management practice and organizational learning; poor leadership will result in a bad business integration and even wasting the preciously initial injection funds; insufficient planning may trouble company in the long term. For example: high financial risk and poor financial condition. In addition, this report correlates the theory with a famous case of failed joint venture--- TCL & Alcatel, to prove the validity of theory that referred in this report. And moreover, give some suggestions for TCL to break off the dilemma
To date, if a company wants to speed up the expansion, it may decide to use surplus resources or raise further cash by cooperating with another existing business. As one of the popular entry modes, joint venture is now been utilized by many multinational enterprises due to its unique advantages: share costs and risks with partner, reduce political risk and benefit from local partner’s knowledge of market. Joint venture can be defined as an entity formed between two or more parties to undertake economic activity together (Hill, 2009, p. 499). By the two businesses agreeing to set up a joint venture they have formed together using the same name but they are separate businesses, both of the companies could gain from this is that they are able to access new market, they are also able to increase their capacity and they biggest gain that both of the company sharing their risks and cost with their partner (Marney, 2009). Both of the businesses are also having more ideas to share with one another. But by setting up a joint venture between two businesses also can be failed if partners do not deal with each other properly. This report is going to identify the factors which may result in a failure of joint venture. Generally the significant factors include: Cultural Differences, poor leadership and insufficient planning (Kotelnikov 2007). In addition, this report also raises a classically failed case of joint venture formed by Chinese based enterprise TCL and Paris based enterprise Alcatel, to explain and verify each of these factors.
In August 2004, one of biggest multimedia technology enterprise--- TCL, announced to form a joint venture with the loss-making mobile phone division of the Paris-based Alcatel. Alcatel posted a net loss of 74.4 million euros in the fiscal 2003 and 34.8 million euros in the first half of 2004. The joint venture was called TCL Alcatel Mobile Phones Limited (TAMP). TCL paid 55 million euros to get a 55% equity stake in the joint venture while Alcatel contributed cash and its loss making mobile phone business worth 45 million euros for a 45% equity stake. All of Alcatel's 600 R&D, sales and marketing staff became employees of TAMP. TAMP distributed Alcatel brand mobile phones in Europe and Latin America and TCL brand phones in China and Asia. Outwardly this is a good chance for TCL to gain more market shares and improve the reputation of brand in foreign countries, because joint venture can increase the company’s capital, further...
References: Kotelnikov, V 2007, ‘Most common causes of joint venture failure’
http://www.1000ventures.com/business_guide/jv_failure_reasons.html (Accessed: 27/04/2010)
Marney, C 2009, ‘Joint venture: success and failure’
http://va4growth.com/blog/?p=591 (Accessed: 27/04/2010)
Tang, R 2007, ‘Culture differences and international joint venture performance’, vol. 28, no. 3, summer, pp.87-98
‘TCL- Alcatel—A “perfect” sample of failed joint venture (in Chinese)’, Chinese computer users, 02 January, 2008, p
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