The Success of Nortel and LG Company Joint Venture (Case Study Sample)

The Success of Nortel and LG Company Joint Venture
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The Success of Nortel and LG joint ventureIntroduction
The decisions made by the administrative management determines if a business venture succeeds. Big companies choose joint ventures to acquire a sizeable stake in profitable organizations. Joint ventures are now a common scene among the North American businesses who want to have stakes in China and other Asian countries (Beamish, 2012). Joint ventures have become excellent choices for doing business in international markets. The joint ventures allow companies to share risks, profits and operating risks with home partners. However, many concerns arise among business managers that a JV is not profitable and easy to manage. According to Beamish (2008), firms agree to go on joint ventures internationally to develop new products and services, and then penetrate new markets (Beamish and Choi, 2004).Case study questions1). Did Nortel make the right decisions by entering South Korea through joint venture? Any other market alternative available for Nortel?Nortel Company had several options for reentering South Korea. From this case study, the Nortel policy of going for a joint venture was the best option at the time. According to the Encyclopedia of Business (2014), a company choosing joint ventures gets the motivations to agree on the alliances. The selection criterion is based on the reasoning that by Nortel partnering with a Korean company, the bondage will introduce different strengths. In the end, this brings competitive advantages to all parties.Additionally, Nortel could not have managed to enter a hostile market. Therefore, joining with another company through a JV helped the management to build on the company strengths. Already, Nortel had built a sizeable market for its products. However, the need to grow means additional profits and expansion of the market. Under this venture, Nortel was able to spread the risks and costs of the company targets (Mellon, 2012).Establishing a new company in South Korea may appear easy on paper, but hard to implement. The decision to engage in a joint venture was a strategy for Nortel. Nortel chose this because it did not have trusted employees and managers. Nortel had to get a venture partner do the regulations and supervise the acts of employees in a foreign country (Wolf, 2011).Foreign government tries to protect homegrown companies. The issue of getting operation licenses contracts and other non-equity problems could have taken longer for Nortel to accomplish. Because of market uncertainty, Nortel had a simple way to penetrate the market through joint ventures. According to Brouthers (2012), international joint ventures for a foreign company help to outperform fully owned subsidiaries. Besides, the capital injected by Nortel indicates signals commitment while increasing the chances of success.Before a company decides to go for a joint venture, the administrators must investigate the foreign company objectives. In this case, Nortel company managers did their research to determine that the Korean company has the same objectives. Pearce (1997) argues that joint ventures prove to be a demanding task if the parties have different objectives. Therefore, we assume that Nortel managements made the decision after ascertaining that the LG Company in Korea holds the same objectives. Combining resources and goals of two companies remains a good indicator for both partners.Alternative To Joint VenturesEvery company has different options when choosing a market entry option. Nortel could have possibly chosen from the different options available. A good example is through exporting its products. Exporting is a non-equity entry strategy. Singh and Delios (2012) states that exporting strategy is used as an opportunistic approach to foreign markets. However, the appeal of exporting relies on a contractual nature. Here, Nortel did not require a fixed investment to succeed. The option requires little management to succeed. Nortel could have chosen Countertrade as an entry strategy. Under this strategy, the entrant gets a new way to finance export deals when all other means are not available. Many developing nations have problems getting foreign exchange needed to pay for import. Countertrade could have worked better for Nortel (Cherunilam, 2010). Buckles (2011) advise companies to go into strategic alliances unselfishly and with a clear expectation shown by each side. It should be replicated even before signing the agreements.2) Advantages and disadvantages of using strategic alliance as shown in the case study. Describe unique benefits of controlling 50% equity plus a single share.A strategic alliance between companies operating in different countries has become a big part of global competition. The strategic alliances help companies to win globally. In fact, senior managers know the benefits of forging new alliances. No single company is an Island to succeed without the assistance of others (Rangan and Yoshino, 1995). Strategic alliances bring many advantages to companies. In the case of Nortel and LG, the two companies get new markets. Opportunities for growth exist from alliances because the companies open and penetrate new markets. The alliances open access to each company’s partners and facilitate networks for distribution and customers (Harrison et al, 2012).A bigger advantage arising from the strategic alliance between Nortel and LG involves sharing of knowledge and technology (Berrell, Wang and Clegg, 2007). The alliance gives access to the know-how of the other partner. A good example is the exchange of technology used between the two companies to manufacture unique products. Buckles (2011) say that the strategic alliance between companies helps to supplement services to clients where one company could not have achieved. Different service spread to potential new clients. Strategic alliances help companies to reach new markets. The alliances increase awareness of strong brands. New companies can offer a range of new products to the market and expand its brand (Nair, 2011).Signing of strategic alliance agreements benefits from the economies of scale. It is seen on the cost advantage that partners gain through expansion policies met. For example, Nortel and LG widened their marketing partnerships which a single company could afford when doing business alone. The reduction in costs becomes a reality from strategic alliances when doing research or accessing facilities used by other companies (Jones and Hill, 2012). According to Grimsley (2014), entering into strategic alliances helps a foreign company gain political advantages. Many countries require foreigners to team local companies to enter their markets. The partnership helps to avoid legal barriers and prejudices. The strategic alliances done by politically correct companies and partners improve company position and influences.The DisadvantageMany companies agree and sign on a strategic alliance. Though the agreement leads to a low-cost route for new technologies and the markets, it is possible that the agreement, though profitable, lives for a short time (Ritcher and Pahl, 2009). On a bigger scale, a notable disadvantage of strategic alliances as seen in Nortel and LG is the issue of culture. Working with overseas partners small in size brings cultural issues. In many cases, the different ways of doing business vary among countries (New Zealand trade and Enterprise, 2014). Culpan (2002) argues that companies looking for more profits will not gain by signing a strategic alliance. The profits from these alliances are divided among the partners. In addition, it takes years to get a return on the investments. Culpan (2002) argues that disputes may arise. When the relationship between hostile nations increases, the breakup may lead to intellectual property battles when a joint product was developed. Jonnard (1997) sums it all by arguing that the major and possibly the greatest disadvantage with strategic alliances is the vulnerability of high technology companies to piracy. If the partners show dishonest behaviors during collaboration on projects, companies pirate the products and offer unnecessary competition.Many companies that use strategic alliances have an inbuilt fear. One notable fear is that there might be an eventual merger and takeover by the strong company. Big companies that have the financial muscles can even use underhand tactics to ensure they take over small companies. It brings suspicions among partners. Different cultures come into the light when a strategic partnership is signed. Because every manager wants to succeed, there is a tendency that the promises made by the joint venture managers and the agreements made will not live to the expectations.The unique benefits of controlling 50% equity plus one shareCompanies should avoid stripping shares on a 50/50% basis. When issues arise, they become hard to manage. According to Hauswald and Hege (2002), controlling a 50% plus one share is beneficial in legal terms. If disagreements among companies arise and one company own a 50% plus one share equity, permanent deadlock will not occur. The company with this advantage can invoke a legal clause to make a unanimous decision.3). Skills and attributes possessed by successful joint venture managersFor any joint venture managers to succeed, they have to show different attributes and skills. Managing a venture in another continent is not easy. One skill and attribute needed here is the ability to network with others. A good case is to hire an international attorney to advise you on things you don’t know. The network groups enable the joint venture manager to understand any agreement and document signed. Understanding foreign laws is not an easy thing. However, a joint venture manager who finds problems will skillfully network wit...