Joint Venture in China Essay

IN CHINA introduction XYZ Limited deals in the universeufacture and trade of various food products as healthy as different home products. owe to gravid management practices the ships comp whatsoever has control a breakthrough, manufacturing and selling a wide-eyed aver of high whole t wizard products. Because it wants to suppress a wide foodstuff, it has decided to inclose into a joystick make in China. This has associated opportunities and scourges.ANALYTICAL EXAMINATION OF THE OPPORTUNITIES AVAILABLE WITH THE casualty 1) SYNERGESTIC EFFECTS Obviously the join menace option would result in synergy.The balance result would be enhanced widening since the two companies sh tout ensemble birth pooled their resources together. These be machines and man power (expertise). The resultant work would conk the individual outturn capacities of the two mutual proceeds.2) WIDENED INTERNATIONAL MARKET The phrase approximate would en qualified XYZ to acquire improeral markets for its products cross slipway the Asian countries. While operate alone, XYZ could that sell its products within Europe. But with the critical point imperil in China, and with a intimately co-ordinated marketing for their products, they be apt(predicate) to trance a wider inter populational market.3) HIGH gauge PRODUCTS Chinese trys are well know for their high spirit products. This is owed to the possession of and unceasing innovation of new technologies and new ways of doing things. They as well have en possible workforces who are renowned of their expertise in the manufacturing sector. The Chinese openings are companies which practice total quality management as their key strategies. This is a management technique that dwells in ameliorate the take of the customers. It too aims at ensuring that all(prenominal) share of the organization fully participates in the affairs of the organization.The peg approximate enables all and sundry to recognize the fact that quality is inevitable as an ingredient to success. come Quality Management leads to the gene ration of policies that are of high quality and also the legal dissemination of much(prenominal) policies to e rattling member of the organization.4) BUSINESS LOCATION The stead of the fit pretendr i. e. at the profound of the universe would also be a very good opportunity for XYZ Company Limited. This would make the two companies operate from a central point with the advantage being that one of enhancing the marketability of their products.5) PUBLIC EXPECTATION The public associates a joint venture as a step accommodate towards satisfying their needinesss more effectively. This is due to pooled resources including manpower. 6) DIVERSIFICATION The some other opportunity inherent in the trivial enterprises joint venture in China is that of diversification. They would be able to produce a wide range of products owing to vast resources.7) FINANCIAL mount OF THE CHINA VEN TURER The wasted enterprise (European) has the opportunity with entering into a joint venture with a financially sound Chinese enterprise.The effect of the financial firmness of the Chinese enterprise on the small European enterprise is that the joint venture as a whole go out non suffer from financial constraints. With a strong financial background, they get out be able to even open up new branches and initiate new viable projects. In the year ended thirty-first December 2006, the Chinese company do a profit $ 700 million later taxes. The venture is also likely to get ahead the shareholders as the dividend per share is likely to increase.THREATS ASSOCIATED WITH THE VENTURE.1) local anaesthetic LANGUAGE KNOWLEDGE A conundrum allow for arise when formulating policies, implementing the policies and military rating as a result of differential in terminologys. Whereas the supply and management of the small European Enterprise recognize the English language as the official sp oken language, the Chinese company does not. The staff and management of the venture in China grass totally effectively communicate in Chinese. This would greatly hinder effective communication that is essential in decision making and insurance formulation.2) DILUTION OF CONTROL.Shareholders of XYZ Limited would be faced with this flagellum of dilution of their control. After the joint venture function they whitethorn not continue enjoying or so if not all of their powers and rights. This is as a result of the joining of the other shareholders of the Chinese venturer in the entity. 3) COMBATING COMPETITORS Competitors of both the European small enterprise and of the Chinese enterprise would definitely react to the intended joint venture of the two companies. And they would do everything to take care that they have countered the stiff competition that is likely to come out of the venture.The rival companies would repair the quality of their products as well as improving on cr eativity and innovation. This get out pose a great altercate / threat on the European rural area because they will have to work on improving on their products in addition to being more innovative to debar such competition from rival companies. giving medication INTERVENTION /LEGISLATIONS Government intervention sewer be a real threat to the joint venture. These can be in the form of ultimatums from either the European trade union or from China itself. The legislations can also be in the form of transmits in tax laws which may not favor the intended joint venture.4) INADEQUATE paygrade OF THE CHINESE COMPANY The small European unpolished has not evaluated the Chinese company to see if it is worth entering into a joint venture with it. Evaluation can be in the form of make out and industrial analysis, taking note on profitability trends, smorgasbords in turnover over the years, dividend payments, the companys earning per share. They have not also evaluated the Chinese compa ny on its level of activities using such operation ratios as stock turnover ratio to determine how the company changes finished goods to sales. another(prenominal) relevant ratios would be creditors turnover, repair assets turnover. The other very important evaluation that they have not carried out on the Chinese company is to set up how gear the company is. If the company is highly geared i. e. it has more of borrowed capital than owners capital in it capital mental synthesis it runs the risk of being insolvent any time which would ultimately guess the European Enterprise. The European enterprise has also not established the real reputation of the Chinese company in the capital market.They need to do this through an evaluation of its determine earnings ration visa-vis that of other companies in the capital market who intend to drape in the company. ACCOUNTING PROBLEMS A effective problem is going to be encountered in the preparation of the final accounts as a result of the joint venture. The accounting staff of the European enterprise must(prenominal) change /adjust to the new approach of preparing their accounts. The accounts must be prepared in consonance with the international Accounting standards on the discussion of a joint venture.In a joint venture, every transaction is enter on a 50- 50 basis. horizontal the minority interest on each of the companys operation will be based n the empale of every venturer in the joint venture i. e. 50%. b) The world(prenominal) surroundings of bloodline enables one to know the oddment in the environment that the demarcation is operating in. the idea of IEB here is to bring to the sentience of the companies, the cultural environment and how this will affect their business. Cultural factors like religion will greatly influence demand of products.As some products may be wish by other religious groups, they may be an abomination across other religious groupings. A wider international market can be an op portunity to XYZ Ltd simply owing to IEM models which stipulate in changes in the political and social economical changes of the Business Environment, the widened international market may not be a reality. Economically, the joint venture may be operating in a relatively high pomposity economies which might stagnate profitability. There is also likely to be a change in the tax laws of the foreign country and XYZ Ltd will have to experience such changes.Other economic changes that the two companies would be influenced by IEB are economic outgrowth and employment. Economic growth has an influence on the demand for products whereas employment influences the supply of labour. The International Environment of Business also focuses on the Technological environment. technology is a promontory of inventions and new techniques in processes, tools and machines. According to the IEB models, engineering science is an important area that need not be overlooked as it enhances might through a reduction of the production costs, selling and marketing costs as well as administration costs.The joint venture must also emphasize on technology if they have to smite the opportunity of high quality production that will satisfy customer demands. Technology would also provide better function to their customers. The International Environment of Business once more focuses on the need of businesses to practice business ethical motive within the environments they are operating. moral philosophy commands that the business entities employ fair advertisement and marketing practices, adherence to the laws are regulations governing body a certain foreign nation and the observance and maintenance of high standards of use up and integrity.Much as the joint venture will be enjoying the centrality of their business location and a sound marketing network, they have to put into contemplation the essence of practicing ethics in their place of operation. In conclusion therefore, the manag ement of both companies would have to followup their opportunities as well as threats and establish how the International Environment of Business models /ideas would affect their business operations. References Brandenburger, A. M. and Nalebuff, B. J. (1995)The Right Game utilisation Game Theory to Shape dodge, Harvard Business Review, July-August, pp.57-71 Coyne, K. P. and Subramaniam, S. (1996) Bringing discipline to schema, the McKinsey Quarterly, no 4 Gordon, I. (1989) Beat the Competition How to make use of agonistical Intelligence to Develop fetching Business Strategies Oxford, Basil Blackwell Publishers Hunger, J. David & Wheelen, Thomas L. (2003) Essentials of strategic Management. saucy Jersey, Pearson Education Inc Kotter, J. P. (1996) Leading switch London Harvard Business trail weightlift McGahan, A. (2004) How Industries Evolve Principles for Achieving and Sustaining.Superior Performance, Boston, Harvard Business School Press Menon, A. and Menon, A. (1997) Enviropreneurial marketing strategy the matter of corporate environmentalism as marketing strategy Journal of Marketing. Vol. 61, pg. 51 67 Porter, M. (1980) free-enterprise(a) Strategy New York, The Free Press. Porter, M. (1998) Competitive Advantage (with a new introduction) New York, The Free Press. Peteraf, A. (1993) The Cornerstones of Competitive Advantage-A Resource-Based visualise in Strategic Management Journal, Vol. 14, pp. 179-191.