EXECUTIVE SUMMARY
With constant changes in the environment, organizations are forced to expand their market. In order to do so, organizations have relied upon the use of entry strategy. Nokia is one of the organizations that have focused on using only joint venture as an entry strategy. Using joint venture does have many benefits and advantages associated with it but the limitations and challenges are far more advanced. Due to such reasons, only focusing on joint ventures could enhance the risks for the organizations in the market.
INTRODUCTION
Joint venture is one of the most prominent market-entry strategy that both national and multinational organizations in the world are highly focusing on as such strategy has become a popular mean for organizations to accomplish its desired goals and objectives (Barkema, Shenkar, Vermeulen, & Bell, 1997, p. 426-442). This offshore entry strategy allows the organization to establish its roots in foreign countries. In addition, such an effective market entry strategy provides/offers an opportunity to the organization to reap impressive profits with the help of comparative advantages of others (Bamford, Ernst, and Fubini, 2004, p. 90-100).
Joint venture is often regarded as 1+1=3 process. Two distinct companies work together to accomplish its desired goals and objectives in a particular market due to which, a new third company is formed or created to undertake the whole process (Tong, Reuer, & Peng, 2008, p. 1014-1029). With two companies working together to accomplish common goals in the market, the organization is provided with several advantages i.e. sharing of risks, combine knowledge, financial strength, shortened learning curve, and enhanced company’s credibility and builds competitive barriers in the market (Reuer, & Leiblein, 2000, p. 203-214). In addition, it has also been indicated that with such market entry strategy, an organization is provided with an opportunity to penetrate the market quickly due to which the payback is also faster than other market entry strategies (Kirby & Kaiser, 2003, p. 229-242).
The aim of this study would be to evaluate the difficulties and special problems associated with the use of Joint venture to cater the needs of customers in other countries. Moreover, the difficulties that the organizations are presented with when joint venture strategy is implemented would also be evaluated. In addition, the study would also focus on special problems that could be expected with the use of such market entry strategy. In the end, recommendations would be provided so that the company could have higher possibility of success in the market.
Nokia had the largest market share in the year 2009 but with the passage, the company lost its competitive edge to meet the unending need of the customers (Alcacer, Khanna, Furey, and Mabud, 2011, p. 1-5). The company’s market share in 2012 was quite upsetting for the organization as it collapsed to only 19.2 percent in 2012 (Gartner, 2012). In order to revamp its sales and market share, the company is expanding worldwide and to do so, the company is expecting to use only joint venture as its option to enter new markets.
Difficulties
The difficulties that the company i.e. Nokia would have to face and suffer if it only practices joint venture as market entry strategy for its Smartphones are as follows:
Control over management
The first and the foremost difficulty that the organization would have to face due to such market entry strategy is the lack of control of management. In such market entry strategy, two organizations work together for the accomplishment of common desires and objectives. For this to happen, a third company is created which includes employees from both the organizations. Due to lack of control, Nokia would not be able to effectively enter the market as the management of the newly created enterprise would include employees from both the companies (Buckley & Casson, 1996, p. 849-876).
Different Views on Expected Benefits
It has been observed in recent years that organizations that entirely focus on such entry strategy (i.e. joint ventures) have to face divorce within three years. In addition, it has also been recorded that 40 percent of joint ventures are not even able to accomplish its short-term desired goals and objectives. This is mainly due to inability of the organizations to create relationships and lack of clear objectives that creates mistrust and miscommunication in the organization (Kumar & Subramanian, 1997, p. 53-72).
Different Cultures and Management Styles
Cultures and management styles also possess a great challenge for the organization to enter new markets with the help of joint ventures (Brouthers, 2002, p. 203-221). It has been observed that when two organizations with different cultures and management styles work together for the accomplishment of desired goals and objectives, the results are quite disappointing due to poor integration and co-operation among the employees of both the organizations (Pothukuchi, Damanpour, Choi, Chen, & Park, 2002, p. 243-265).
Protection of Proprietary Resources
The newly created company works for the accomplishment of desired goals and objectives due to which it attempts highly on the development of shared resources. As each firm has its own separate objective i.e. protection of its own proprietary resources, due to which the newly created organization fails to accomplish its desired goals and objectives. Such challenge in joint venture limits the success of the company to accomplish its goals i.e. to cater the needs of its customers along with increase in profits and revenues (Hyder & Ghauri, 2000, p. 205-218).
Hierarchical Control
Success of joint venture relies heavily on the co-operation and coordination between the organizations but to gain superiority over other organization in joint venture, organizations tend to have hierarchical control (Choi, & Beamish, 2004, p. 201-215). Having such hierarchical control would allow the organization to have power over other organization in the joint venture. This hierarchical control eventually limits the success of the newly created company due to which the organization neither is able to accomplish its desired goals and objectives nor able to work together to gain competitive edge in the market (Yan & Zeng, 1999, 9. 397-414).
Planning and Control
Insufficient planning and control of the market entry strategy also reduces the risks of success and increases the risk of failures in the marketplace. If the company wishes to only practice joint venture as market entry strategy, the strategy should be provided with proper understanding of both the parties. Each and every aspect of plan should be considered such as provision for future contributions, logistical issues, governance of joint ventures and dispute resolutions. In addition, the company should also focus on terms and termination of joint venture along with the provisions for winding up the business (Boersma, M. F., Buckley, P. J., & Ghauri, 2003, p. 1031-1042).
Special Problems
The expected special problems that might risk the success of joint ventures are as follows:
Cultural Differences
Cultural differences are quite common is joint ventures (Sirmon, & Lane, 2004, p. 306-319). Even though, before entering joint ventures the employees are provided with change management training which could help the employees understand the importance of working together with others to accomplish desired goals and objectives. But such differences do occur during the joint ventures (Hennart, & Zeng, 2002, p. 699-716). This is one of the challenges that could create difficulty in practicing the joint ventures. For organizations like Nokia, such challenge could sidetrack the business and its operations which could eventually lead to the failure of the business. Being a multinational company i.e. Nokia, the investment for entering the new market is quite high and with cultural differences acting against such entrance, the organization would have to suffer huge loss.
Poor Leadership
For joint venture’s success, it is essential that the newly created organization should be provided with strong leadership in the earlier stages. On the other hand, it has been observed that most of the organizations along with the partners do not provide enough leadership to keep the business running. This is one of the expected challenges that could put the entrance of the organization in the new market at risk.
Poor Commitment
As both the organization works together to enter new market with a common purpose (i.e. enhanced market share and profits) but as the organization lacks control over the management, lack of commitment could be witnessed. In addition, it has also been indicated that with the distribution of profits and revenues, the employees show poor commitment towards the organization and its desired goals and objectives. With such poor commitment of employees, the organization would lack to provide the customers with products to satisfy their unending desires and needs.
Dishonesty and Fraud
Dishonesty and fraud are some of the expected problems that occur in joint ventures. With dishonest person in the organization, the joint venture between two organizations might suffer as being associated with dishonest person reduces the credibility of the organization to great extent. In such competitive environment, organizations in the world are quite cautious to create links with others that have high credibility and integrity.
Changes in Political Atmosphere
Political environment in a country constantly change which might create difficulties in joint venture between two organizations. Although civil unrest and riots are limited to certain third world countries but it does happen rarely in other countries as well. For an organization to successfully infiltrate a new market, it must critically observe the political environment and should develop contingency plans to have a hold of the situation if something goes wrong.
EVALUATING JOINT VENTURE AS AN ENTRY STRATEGY FOR NOKIA IN INDIA
One of the key markets for Nokia Smartphones is India. The theory proposed by Geert Hofstede would be the basis of evaluation for the culture in this market. The key components of culture as mentioned by Hofstede are as follows (The Hofstede Centre, n.d.):
(The Hofstede Centre, n.d.)
Power Distance
Finland scores low on power distance as compared to India. This indicates that the country highly focuses on equal rights and involvement of team members in decision making authority. Whereas, India’s PDI is quite high; this would evidently make the joint venture in this country quite tough and difficult for Nokia for its Smartphones.
Individualism
Finland as indicated is quite individualistic society. This means that organizations in Finland focus less on relationship with its employees due to which employees are hired on the basis of contracts. On the other hand, India is on the opposite side of the culture. Indian society focuses highly on relationship with its employees, due to which the hiring and promotion decisions are made on personal relationships rather than merits. This also indicates that the country is highly unsuitable for joint ventures.
Masculinity/Femininity
It is indicated that Finland is considered as a feminine society whereas, India is considered as masculine society. In Finland, the concept of working in organization is ‘to work in order to survive’. In such societies, decisions are made with the consensus of the employees and conflicts are resolved by negotiations and compromise. This is quite opposite in India. India being a masculine society makes it difficult for Finland’s company to focus on joint venture in India.
Uncertainty Avoidance
Finland has high uncertainty avoidance score whereas; India on the other hand has quite low score. This indicates that organizations working in Finland strictly obey the rules and regulations set by the organization and are quite cautious about the behaviour and attitude of the employees.
Long-Term Orientation
Last but not the least, Finland is considered as a short-term orientation cultures whereas, India is considered as long-term orientation culture. Finland has low propensity to save and are impatient regarding results. On the other hand, India focuses highly on savings and has quite high patience in terms of result.
EVALUATING JOINT VENTURE AS AN ENTRY STRATEGY FOR NOKIA IN BRAZIL
Another important market for Nokia Smartphones is Brazil. Geert Hofstede’s theory regarding culture would be used in order to analyze the culture within this market. The key components of culture mentioned in this theory are as follows:
(The Hofstede Centre, n.d.)
Power Distance
It was observed that Finland scores low on this dimension whereas, Brazil’s powers distance score is quite high in comparison of Finland. This indicates that the characteristics of culture within both the country are quite different. This might reduce the organization’s capability to perform well in the Brazil as the power in Brazil is centralized and decisions of the managers are based on their intuitions and judgment rather than unanimous decision of the team members.
Individualism
Finland scores high on this dimension which evidently indicates that Finland is an individualist society. On the other hand, Brazil scores low in comparison to Finland which means that both the countries have different views in terms of society. All the aspects of society i.e. relationship, hiring and promotion decisions along with management are totally different.
Masculinity/Femininity
Both the countries, i.e. Finland and Brazil, score low on this dimension which evidently indicates that both the countries have feminine society. This means that both the countries focuses on the philosophy “working in order to live” due to which, management highly focuses on the involvement of its workforce in the decision making process.
Uncertainty Avoidance
Both the countries have high scores on this dimension which indicates that both the countries highly focus on the elimination of uncertainty. In order to do so, Finland and Brazil maintains rigid codes of belief and behaviour which helps in the avoidance of intolerant behaviour.
Long-Term Orientation
Finland scores low i.e. 45 which makes the culture short term oriented. Short term oriented culture exhibits great respect for tradition but have low propensity to save. On the other hand, Brazil scores high i.e. 65 making it a long-term oriented culture. This eventually indicates that traditions are provided with respect to low level.
Although, some of the dimensions are somewhat opposite to one another, but Brazil could be regarded as the key market to enter with the use of joint venture strategy. The difference in culture would at first create difficulties and hurdle but with the passage of time, the company would be able to fully understand and adapt the new culture it is provided with.
CONCLUSION
In order to conclude, it could be said that even though advantages of such market entry strategy are quite high but the limitations of this strategy should not be ignored. The limitations and challenges outweigh the benefits and advantages associated with such strategy.
For Nokia to enter a new market in the international world, it should focus on other market entry strategy. Even though, if the company wishes to practice such entry strategy it should consider every aspect of business and partners so that the probability of success could enhance to great extent. Some of the identified difficulties or limitations that possess serious challenge to the success of joint ventures include control over management, lack of coordination and negotiations, planning and control and protection of proprietary resources along with other limitations.
Constantly focusing on single market strategy does have its impact on the operations of the organization and its performance. Although, the organization is provided with short-term benefits but in the long-term, the organization has to face barriers and hurdles which eventually reduce its performance and productivity. This eventually indicates that the use of joint ventures to enter new market hampers the global marketing strategy of the company.
RECOMMENDATIONS
For the company to enter the new market with the help of Joint ventures, following recommendations should be considered;
- Nokia should conduct a background check on its partners before signing the contract to enter the new market with others help. This would significantly reduce the chances of failures along with fraud and dishonesty.
- The management should decide in the initial stages of partnership regarding the control of management. To have an effective management, the company should promote its key employees to top management along with partner’s key employees.
- The company should provide high training and development to its employees so that they could resist change and could radically accept new people and culture in the organization.
- The company should settle its disputes and problems with the help of negotiations and co-operations. This would significantly help to establish mutual trust and relationship between the partners and employees.
- The company should select such partners that share the same vision and objectives in the market. With support from such organization, Nokia would have higher chances for survival in the new market and would be provided with greater opportunities to cater the need of its customers in the market.
List of References
Alcacer, J., Khanna, T., Furey, M., & Mabud, R. (2011). Emerging Nokia? Harvard Business School. Available from http://staging.stocktrak.com/documents/830/MBA%20622%20Fall%202012%20Final%20exam%20case.pdf [Accessed 14 April 2013]
Bamford, J., Ernst, D., and Fubini, D. (2004). Launching a world class joint venture. Harvard Business Review, vol. 80, no. 2, pp. 90-100
Barkema, H. G., Shenkar, O., Vermeulen, F., & Bell, J. H. (1997). Working abroad, working with others: how firms learn to operate international joint ventures. Academy of Management journal, vol. 40, no. 2, pp. 426-442.
Boersma, M. F., Buckley, P. J., & Ghauri, P. N. (2003). Trust in international joint venture relationships. Journal of Business Research, vol. 56, no. 12, pp. 1031-1042.
Brouthers, K. D. (2002). Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of international business studies, vol. 33, no. 2, pp. 203-221.
Buckley, P. J., & Casson, M. (1996). An economic model of international joint venture strategy. Journal of international business studies, pp. 849-876.
Choi, C. B., & Beamish, P. W. (2004). Split management control and international joint venture performance. Journal of International Business Studies, vol. 35, no. 3, pp. 201-215.
Gartner. (2012). Gartner Says Worldwide Sales of Mobile Phones Declined 3 Percent in Third Quarter of 2012; Smartphone Sales Increased 47 Percent. Available from http://www.gartner.com/newsroom/id/2237315 [Accessed 14 April 2013]
Hennart, J. F., & Zeng, M. (2002). Cross-cultural differences and joint venture longevity. Journal of International Business Studies, pp. 699-716.
Hyder, A. S., & Ghauri, P. N. (2000). Managing international joint venture relationships: a longitudinal perspective. Industrial Marketing Management, vol. 29, no. 3, pp. 205-218.
Kirby, D. A., & Kaiser, S. (2003). Joint ventures as an internationalisation strategy for SMEs. Small Business Economics, vol. 21, no. 3, pp. 229-242.
Kumar, V., & Subramanian, V. (1997). A contingency framework for the mode of entry decision. Journal of World Business, vol. 32, no. 1, pp. 53-72.
Pothukuchi, V., Damanpour, F., Choi, J., Chen, C. C., & Park, S. H. (2002). National and organizational culture differences and international joint venture performance. Journal of International Business Studies, pp. 243-265.
Reuer, J. J., & Leiblein, M. J. (2000). Downside risk implications of multinationality and international joint ventures. Academy of Management Journal, 43(2), 203-214.
Sirmon, D. G., & Lane, P. J. (2004). A model of cultural differences and international alliance performance. Journal of International Business Studies, vol. 35, no. 4, pp. 306-319.
The Hofstede Centre. (n.d.). Finland. Available from http://geert-hofstede.com/finland.html [Accessed 14 April 2013]
Tong, T. W., Reuer, J. J., & Peng, M. W. (2008). International joint ventures and the value of growth options. Academy of Management Journal, vol. 51, no. 5, pp. 1014-1029.
Yan, A., & Zeng, M. (1999). International joint venture instability: A critique of previous research, a reconceptualization, and directions for future research. Journal of international Business studies, pp. 397-414.
