JOINT VENTURES |
JOINT VENTURES IN TRANSITION ECONOMIES
Within the world of business and enterprises, one of the most important event during the 90s decade was the opening of the transition economies.
This situation occurred in the later 1980s and early 1990s when all republics of the Soviet Union proclaimed themselvesas sovereign and independent, both politically and economically, and concluded with a general economic disorganisation. As a consequent of this fact, markets collapsed. To fix or rebuild this deadlock, each country conducted a series of reforms based, on the one hand in privatization, and on the other in the restructuring.
• The privatization was based on the legal transfer of property rights fromthe state to private entities, differentiating small privatization (small businesses) and large privatizations (large state-owned enterprises).
• The restructuring was based primarily on the creation of a legal system that supports and encourages a market system. On the other hand also needed a financial system where private enterprise could come to work under. Finally it was necessary todevelop a legal framework for workers and social security development.
The transition economies are known as the number of European countries who were exposed to a transition following the path of democratic political regimes. Also so called because they were economies those were making a transformation process from a planned or socialist economy to a market or capitalist economy. In other words, thisprocess of change took place in economies, such as in Eastern Europe (post-Soviet economies), which were passing from a socialist economic system to a free market system on private property.
This opening of transition economies enabled foreign companies to enter and compete in these new markets. Thus foreign companies took advantage of this situation through Foreign Direct Investment which is avery important element of economic integration, because it opens possibilities for accelerating growth, technical innovation, and enterprise restructuring.
During the transition years, the increase of foreign participation in former Soviet Union countries has been a great phenomenal, leading to a different strategies developed and employed by foreign companies. These strategies can take manydifferent forms, but focusing on the growth of the firm there are three main strategies: (1) growth through generic expansion, (2) mergers and acquisitions, or (3) developing network relationship.
Focusing in the growing paths of network relationship, the firms can choose between different ways such as forming enterprise groups, joint ventures, industry associations… These networks serve as strategicalliances both for local firms and foreign firms. These alliances are beneficial for both companies because on one hand, local firms are interested in technology, capital and management experience that foreign firms offer and on the other hand, foreign firms are interested in having narrower links with local firms to succeed in the new markets because many reasons; their lack of experience withinthis new markets, they have not knowledge enough in the management of human resources, and they are not able to have relationship with the government which are very useful in transition countries. Essentially they have lack of knowledge about the host country.
As a result, joint ventures maximize all existing resources and thus allow for joint growth of both firms. For this reason, I am going tofocus in a further research about joint ventures.
What is a joint venture?
First of all, is important to have a clear definition about what is a joint venture. Michael W. Peng defines joint venture as “a “corporate child”, a joint venture is a new firm that is given birth and jointly owned by two or more parent companies”. (MICHAEL W. PENG, Business Strategies in Transition Economies,...