Equity Joint Venture Analysis

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1.5.5 Equity Joint Venture The joint ventures commitment varies from high to low, depending on the type of joint venture (i.e., minority, majority, or equity joint venture) (Hill, C. W. L., et al. 1990)." As reported by Coyle B. (2000, p. 6) a joint venture is a "business partnership in which two or more companies agree to invest […] in a particular business activity. The main purpose of many joint ventures is to create a strategic alliance between separate companies with common interests and complementary skills or experience." A joint venture is a business established abroad in which an international firm has equity in a local company to manage it, but it does not have full power to control the whole company (Terpstra, V. et al., 2012).…show more content…
In the case a firm decides to opt for a direct export mode, it can choose to open an office abroad as a way of FDI, in this way the company can organize marketing activities with the aim of supporting distributor's sales, (Terpstra, V. et al. 2012). Authors also argue that another way to create a FDI is by installing a distribution facility, with the aim of storing products in a central place, and later on distribute them to the external markets. This enables to reduce freight costs, to depend less on distributors and to control inventory and to adapt the products to consumers. Furthermore, foreign manufacturing is when a firm produces in a foreign market to supply all consumers; e.g. when the national production is not enough or when the transportation cost is high Terpstra, V. et al.…show more content…
et al. (2012), distinguish contract manufacturing when a company orders the production of its product abroad, by a producer hired for this purpose. The company is responsible for marketing. By choosing this method the company does not need to invest in a plant, practical when company lacks of experience. This can be a solution for small businesses. Nevertheless, with a contract manufacturing profits usually go to the local company. 1.5.7.3 Wholly owned Subsidiary To establish of a wholly-owned foreign greenfield requires a high-level of financial resources commitment, as the firm has to bear the costs of creating a new firm abroad (Laufs, K., and Schwens, C., 2014; Hill, C. W. L., et al., 1990; Terpstra, V. et al., 2012). However, it means having one hundred percent of the profits; gaining experience and, having access to better feedback from consumers. Below we present two ways to get wholly owned foreign facilities, according to Terpstra, V. et al. (2012). Mergers and
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