For example, negotiations slow considerably when negotiators fixate on specific, preconceived deal terms even though other solutions could also work or when they belabor negotiations on all possible considerations instead of covering the most likely ones.
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Cost can also be measured by long-term damage to the JV. Companies can avoid or at least mitigate such problems by investing more time in the early stages of planning. One US agricultural company requires extensive up-front business planning to confirm internal alignment and identify the motives of each counterparty.
Planners there credit their rigorous preparation phase for making negotiations smoother. They should also engage potential partners in early discussions to confirm that they all agree on the goals of a joint endeavor, on their expectations of changes in the market over time, and on how the JV should plan to adapt as the market evolves.
As a result, a foreign court ordered the energy company to pay extensive damages for an initiative that never even launched. For most companies, a good starting point is for planners to force a tough and thorough self-review to identify their own objectives, goals, and—even more difficult—their strengths and weaknesses as JV partners. Negotiating JVs differs from negotiating mergers or acquisitions because the end goal is a sustainable, ongoing, trust-based relationship, not a one-time deal.
Exhibit 2. Positive initial meetings are important to establishing trust, but planners need to do more. Regular and ongoing business and social interactions with critical parent leadership-team members, including management off-site events and frequent, engaged board meetings, can help maintain trust and communication, reveal the breadth of motivating factors that influence a partner, and nurture a strong relationship even after negotiations conclude.
Understanding partner motives and securing mutual commitment to a deal beyond its financials will help ensure that all parties share the same expectations of ongoing JV operations. In our interviews, numerous executives expressed concern about nontraditional objectives that may be motivating potential JV partners. These include sharing capital to upgrade facilities, achieving a relationship with a previously inaccessible third party, or increasing employment opportunities for a specific region. Such objectives often work to the disadvantage of a JV partner, as managers at a global conglomerate discovered.
They negotiated a deal with a regional player that included transferring core technology into the JV in order to qualify for lucrative government contracts. That creates little institutional memory around key processes, approaches for managing critical issues, and even partnership-specific negotiating skills.
All of these things can be proactively managed, even if deal terms cannot. Without that kind of institutional knowledge, inexperienced teams often see JV negotiations as zero-sum games; they rigidly calculate wins and losses on every negotiating point. That leaves them with little flexibility to appreciate the needs of a partner interested in entering into a commercial agreement or reaching consensus on the terms of a mutually beneficial JV. The result can be a weak or ineffective deal. For example, one global company faced challenges investing in a regional JV because it focused too emphatically on legalistic deal terms to protect its own interests.
That created an adversarial tone in the negotiations and undermined the collaboration needed to allow both companies and the JV to succeed. It also prolonged the process, to the frustration of the JV partners. For most JVs, long-term success also requires an agreement process that is transparent and follows patterns of conversation established from the outset. At its core, this simply means communicating with all parties about how, when, and what to communicate. The eventual pattern of communication may vary from deal to deal, and not all parties will like it. Just laying it out keeps expectations aligned, focuses conversations, and reduces time-consuming delays.
Otherwise, internal approval processes can cause bottlenecks, and not having the right people in the room can bring momentum to a standstill. Standardized processes are especially helpful once a deal is under way, when adapting and restructuring can strengthen a partnership and increase financial returns—as long as the relationship is strong and the process has clearly allowed for adaptation.
Consideration essay financial joint venture
Nevertheless, proper positioning and good customer service will enable it to gain big market share amidst competition 3. It acknowledged that the overseas market needed a positive respond from the locals. With the positive respond from the locals the business has spread and grown across different regions hence, they perceived that the business required management for effective and efficient growth of the business.
Another consideration that was taken was on the value chain which was to be constructed considering a few factors, such as, local culture, legal-political and economic environments. This allows the company to have specified values of accountability, innovation and customer responsiveness.
This strategy of local management allows the employees issues are addressed accordingly considering local culture. In many developed countries there are laws that have been enforced on the environmental laws. These laws are enforced so that the companies abide by them. Different countries dispose waste differently. Woolworth has applied this strategy as they have engaged in the CRS activity. The CRS activity involves supply chain management, nutritious and healthy food products.
On the other hand, Woolworth has come up with low nutritious and low calorie content to the customers. Woolworth has standard operating procedures which include make to stock and just —in-time procedures. Woolworth noticed that they ended up paying different prices for the same good in different countries. Woolworth shops are opened in major cities which targeted the upper and middle class citizens then later start targeting the lower middle class citizens 3.
Thereare a number of elements that have to be considered in order for the company to make the correct choice of strategy. This statement is what guides the company in the choice of strategy for its entry mode into the new market. The sheer size of the company suggests that some modes of entry might not be as promising as other modes might prove. Resources Woolworth has an expansive source of funding and assets at its disposal from its numerous locations in Australia, Europe, and USA.
This places the company at an advantageous position in being able to choose from different entry modes, especially direct investment, which is hard for companies with limited resources to consider. Because the competition already secures a large market share, some entry modes such as joint venture might prove less risky than others such as direct investment in a foreign market. Intermediaries Sometimes entering a foreign market may require that the company works with intermediaries, local business in the same market.
For Woolworths, this consideration will mean that it uses joint venture as its main strategy for entering the market. Risk What risk Woolworth will face in the new market is an important factor to consider when developing its foreign entry strategy into the Portugal fresh fruits and vegetables market. This is what will inform the choice of least risky strategies such as joint venture. Franchising, and exporting. For Woolworth, this decision is heavily pegged upon specific motives, its internationalization goals, and the profitability of the market it wishes to enter.
For the Portugal market, Woolworth can choose from a number of ways by which to penetrate the market. It is often the first consideration most companies choose when planning to do business internationally. For the case of Woolworth, exporting to the Portugal market means that it will produce its own products and facilitate the exporting of the product to the new market, either directly, or indirectly.
Instead it uses a third party to handle the logistics and deliver their products to the market of the foreign company. There is also the benefit of being able to choose a reputable and experienced exporter. On the downside, indirect exporting means that the company surrenders its control of where and when, and how their products will be delivered in the foreign market.
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Also, the company is able to form and manage its own business network in the new market, hence gradually increasing control over the whole marketing process. On the other hand, the company may be overwhelmed for adding new whole business operations to is already complex business order. Its main advantage is that through contractual entry, the company is able to quickly fit into the market demands and specifications, presenting a changes for the company to have a better understanding of the market it wishes to operate in.
Table 1 shows that the franchise mode while it has low risk involved, its profit potential is also lo. Also, as the franchiser, Woolworths will be able to benefit from receiving running royalties, fees, and other forms of compensations from their franchisees. For Woolworth in the Portugal market, Joint venture means that it enters into a contract for a long term or short term project or investment for the mutual fulfilment of the parties goals.
This means that Woolworth will share both risk and capital in the course of the venture.
Decide Your Strategy
Potential problems that may occur I a joint venture include the slow decision making process that may stall business operations and profits. This may be curbed when one of the party assumes a dominant role to lead the venture into greater opportunities and more profits for the partnership.
In the case of Woolworths entering the Portugal market, this mode enables the company to assume control over the mode of entry. In this case Woolworth will assume ownership of the subsidiary in the foreign country, and develop a new business model that suits the new market; based on its unique developmental goals, expertise, and abilities.
In this paper the mode is recommended, not only for the level of control is allows the company, but also for the high potential profits the company is able to gain entering a new market.
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