What Do You Know About "Joint Ventures"?

A joint venture is an arrangement in which two or more organizations coopera¬tively develop, produce, or sell goods or services. The parent firms are indepen¬dent of each other but share control over the joint venture. In some cases, one company supplies the materials and the product expertise, while the other sup¬plies the knowledge to do business in the country they are targeting. This form of joint venture is common in the People's Republic of China and in order regions where the politico legal environment is complex and the concept of pri¬vate ownership is evolving. In Moscow, the first two Pizza Hut outlets were joint ventures, 49 percent owned by Pizza Hut parent PepsiCo and 51 percent owned by the city of Moscow, The city contributed two locations, and PepsiCo con¬tributed the recipes, the operational expertise, and the management.

Such joint venture arrangements are also common in areas where the culture is unfamiliar to outsiders or where the business environment is so complex that special skills are required. For example, the National Basketball Association has formed a joint venture with C. Itoh of Japan to develop television programming and play basketball games in Japan, where accepted business and regulatory practices often confound firms seeking to enter the market.

Joint ventures offer more direct control over international operations than licensing or exporting, and they allow organizations to tap the expertise of others as they expand into overseas markets. They also allow organizations to spread the risk of entering a new market, developing a new technology, or build¬ing a new plant. But joint ventures do not always perform as expected: according to one study, the average success rate is below 50 percent, and the average life span is under four years.