Theory of Joint Venture

Theory of joint venture

Due to the trend of globalization, there are a lot of companies that would like to expand their operations all over the countries. One of the most viable ways to enter foreign markets is by joint venture. A joint venture is a business enterprise under-taken by two or more persons or organizations either in local or even international. In joint venture, the companies agree to share their equity, expense and profit of a particular business project or some specific purpose. (Kotabe & Helsen, 2004) They are also able to participate in the decision making process.

There are two types of joint venture which are equity-based joint venture (traditional) and non-equity joint venture (cooperative). (Kotabe & Helsen, 2004) Equity-based joint venture is an agreement whereby the partners agree to raise capital in proportion to the equity stakes agreed upon. Equity-based joint venture benefits foreign and local private interests, groups of interests or members of the general public. On the other hand, non-equity joint venture refers to collaboration between the partners that do not involve in any equity investment. (Kotabe & Helsen, 2004) The participants do not always provide capital as part of their joint venture commitments.

There are three forms of partnership that can be distinguished, such as majority venture (more than 50% ownership), 50-50 % ownership and minority venture (less than 50% ownership). Joint ventures may occur within organizations which are different size and geographical location, different sectors or within the same sector in order to satisfy strategic purposes. Companies involved in joint venture may focus on their core competencies and join efforts to explore the new markets at the same time. (Neves, 2006) Nowadays, joint venture becomes more popular in large international organizations that operate in a common sector, as a way of becoming a leading global player.

Introduction to Sony Ericsson Mobile Communications

Our group has chosen Sony Ericsson Mobile Communications as the example of company which are entering a joint venture. Sony Ericsson is a joint venture company between the telecommunications leader, Ericsson Division Consumer Products from Japan and consumer electronics powerhouse Sony Digital Telecommunication Network from Europe. Through the joint venture, Ericsson offers a range of mobile devices including those supporting multimedia applications and other services allowing richer communication.(Ericsson Official Website) Besides, Sony's expertise in designing consumer product also carry out the intention of joint venture.

Sony Ericsson is owned equally (50:50) by Ericsson and Sony. The company headquarters was based in London, UK and having about 8,000 employees. (Datamonitor) Sony Ericsson is a global provider of mobile multimedia devices, including feature-rich phones, accessories, PC cards and M2M solutions. (Sony Ericsson Official Website) They combine the cell phone operations and provide co-developed cellular handsets and services. The products are combined by powerful technology with innovative applications for mobile imaging, music, communications and entertainment. The net result is that Sony Ericsson is an enticing brand that creates compelling business opportunities for mobile operators and desirable fun products for users.

The company undertakes product research, development, marketing, sales, distribution and customer services. The global management is based in London, while R&D is based in Sweden, UK, France, Netherlands, India, Japan, China and the US. In addition, the company's Creative Design Centre is located in Sweden, London, US, Asia and Japan. (Datamonitor)

Reasons of Joint Venture

As we mentioned above, a joint venture is a contract which built a relationship between two or more parties in local or even international. It brings a lot of benefits to all parties, therefore some companies are considered to be involved in joint venture. There are a few reasons of entering a joint venture. One of the reasons to enter joint venture is to access financial recourse. (Chip, 2007) A company needs a great amount of money to set up and maintain a business. Furthermore, more capital is needed when developing a new product. Therefore a company will struggle in a condition with lack of capital and they need support from others in order to continue its operating. Consequently, joint venture will be a wise choice in relation to gather more capital from other companies.

The second reason is accessing to other capabilities and resources such as technology, specialized staff or distribution channel. In a joint venture, besides capital and risk, two or more parent companies agree to share technology and human resources. By accessing to new