Investment Entry Though Joint Ventures

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Investment Entry Though Joint Ventures

Joint venture entry occurs when an international company invests in business enterprise in a target country together with a local partner firm. The foreign investor may hold majority, a minority, or half of the joint venture’s equity. Joint ventures are usually started from scratch, but they may also result form the purchase of equity in an existing local firm.

Advantages of Joint Ventures

In many developing countries joint ventures may be the only investment entry mode available to international companies because host governments prohibit sole ventures. By contributing capital to the joint venture, the local partner reduces the foreign partners’ investment outlay and risk exposure. but the local partner’s most valuable contribution is his knowledge of the local business environment and his ongoing contacts with local customers, suppliers, bank and government official. That is why joint ventures can be attractive to companies with little experience with foreign operations.

Disadvantages of Joint Ventures

International managers commonly complain that joint ventures dilute their control over foreign operations. Even with majority joint ventures, international manager must accommodate the interest of local partners.

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