When any company wants to enter into a new market (country) for the expansion of its business, at that time, management of that company do not know much more about that particular market.
Before entering into the new market, Company has required to know a lot of thing about that market such as: choice and preference of the citizens, geographical and political conditions, different rules and tax policies of that country. It is not easy for any company to know these things from itself.
To know about the different conditions present in that particular market, companies often hire local research agency to get a broader report based on conditions given by them to get success in their business expansion. But many times, these reports are not proven good for the company to start its business in that particular new market.
So, According to me Joint venture is less risky way to enter into the new market. Joint Venture is an arrangement in which two or more companies called joint venture partners contribute to the equity capital of a new company called joint venture in pre-decided proportion.
From the following reasons Join Venture is less risky way to enter into a new market
- Risk is shared between the partners
- Managing Cultural Bridge because, of the name of home country’s company.
- Dealing with Government becomes easy because home company easily handles the legal requirement of the local Government.
- It gives competitive advantage.
As it gives a lot of advantage, it also gives some disadvantages.
Example: As both of the companies shared their expertise with each other, it might happens that the local company after taking a precious expertise from the foreign one, break the Joint venture and starts its own company with its own brand name. And in this game, local company become the winner as the emotions of local people is with the local company.
Some of the successful examples of Joint venture are
- Maruti Suzuki in India, a joint venture among Maruti ,India and Suzuki, Japan.
- Japan Nuclear Fuel Ltd. (JNF), a joint venture among General Electric Company, Toshiba Corporation and Hitachi Limited.