1. Joint ventures can be very unstable if the partnership is not properly established. For a company like GE, with a large amount of income to invest in new partnerships and new strategies, it can certainly be beneficial to build their own venture from scratch as a greenfield venture (Business Leadership Management, 2015). However, when GE was utilizing acquisitions and greenfield ventures, the economy was a very different animal than it is today. Today, the economy is much weaker than it was in the years prior to the 2008-2009 downturn; risk in the marketplace needs to be carefully considered and avoided by most companies, even companies that can be considered to be industry giants.
2. As stated previously, it is almost certain that GE has come to prefer joint ventures as a direct result of the economic downturn that happened in 2008-2009. Prior to the economic downturn, the country was not necessarily in a great economic state; the attacks of September 11th, 2001 had caused a minor downturn in economic growth, and there was the suggestion that America was headed into a recession (Obstfel & Rogoff, 2009). However, it was not until 2008 and 2009 that the crisis really began to take hold and affect some of the largest segments of the American economy (Castells, 2014).
In addition to the economic crisis of 2008-2009, there are a number of benefits of a joint venture that cannot be had when a company takes on greenfield ventures or acquisitions. Many of the emerging markets of the world are in places where governance is still sporadic and unpredictable at best; in these types of locations, it is often beneficial for companies to make partnerships with local ventures to avoid having to deal with the realities of a corrupt local government or workers that speak only the local language.
3. There are a number of different risks associated with joint ventures, and despite the benefits previously mentioned in regards to joint ventures, there are no guarantees that a joint venture will solve all the problems that a company has in terms of their mergers and acquisitions strategy (Büchel, 2013). When a company enters into a joint venture, they suddenly have access to a new market, with a new company; undoubtedly, GE vets all of the companies that it enters into joint partnerships with very closely, to avoid any kind of miscommunication between the partners.
4. If GE were to suddenly begin to take advantage of their partners, the first thing that is likely to happen is that partners would begin to break off their association with GE. When the public begins to perceive that GE is acting in ways that are inappropriate and manipulative, the company loses support for its various ventures; because GE relies on customers to make profits, this could be a turn of events that would be very difficult for GE to overcome in the American marketplace. Another issue that could very well plague GE that is less business-based is the issue of public perception. There is no doubt that American consumers do not like a bully, and when they perceive that a company is acting in a way that is bullying other companies, the general tide of public opinion can turn against the company very quickly, even if that company has a longstanding history in the American marketplace. One of the most notable things that GE does is refuse to make agreements with companies if the two companies cannot come to an agreement regarding the goals of the joint venture.
5. GE’s powerful position as an institution in the American economy has made it a force to be reckoned with in many different niche markets. Although it sometimes wrestles for control with potential joint venture partners, the reputation of being a fair and equitable partner goes far for GE in the business world. The successes that the company has had in the marketplace since its inception is all the evidence many companies need to want to invest energy in building a successful partnership with GE; however, GE does not always successfully make agreements with companies regarding joint venture goals.
Analysis of Case Study
Point of view
The discussion in this portion of the analysis will examine the applicability of joint venture strategy to GE’s current economic position and the future economic position of the company. The researcher has taken the view that joint ventures are potentially strong strategically for GE, and that GE will be able to mobilize joint venture partnerships extensively moving forward. For this discussion, the contention will be that GE’s strategy of joint ventures is a strong strategy moving forward. This analysis will feature a SWOT analysis, in which the researchers will discuss the advantages and disadvantages of continuing this policy quite extensively; the researchers will also investigate potential alternatives to the joint venture programs that GE has in place currently, in case these joint ventures must be abandoned in certain sectors going forward.
Statement of the problem
Joint ventures, despite their problems of instability, are excellent options in the weakened economy. They offer GE less control over the company, but they also require less financial investment by GE itself—and GE does not need to invest the man-hours necessary to restructure a company that is still autonomous (Business Leadership Management, 2015). GE has certainly developed some new problems because of its reliance on joint ventures—as previously stated, in joint ventures, the companies in the venture retain their autonomous nature and therefore the structures within these ventures can dissolve as easily as they form, and the companies in question can go on their way and develop partnerships with other companies (Business Leadership Management, 2015). However, GE might even prefer this transient nature to the heavy investment necessary for other types of business ventures; it ensures that GE has an exit plan in case the financial benefits for the venture fail to pan out (Hennart & Reddy, 1997).
GE has an incredibly strong presence in a number of markets, and, according to the GE case study, they have a strong history of being a good partner in joint ventures and joint partnerships. Moving forward into a time of greater economic prosperity, GE will need to determine if the best course of action will be to continue to mobilize the joint venture aspect of expansion, or if a return to greenfield ventures and acquisitions is a better strategy. There are strengths and weaknesses to each potential strategy for GE, and going forward, there are a number of issues that GE must consider before retaining the current strategy of joint ventures or reverting back to a different strategy involving acquisitions or greenfield ventures.
Objectives
GE has a number of objectives with its joint venture strategy:
Mobilize markets previously closed to the company;
Enter emerging markets in a way that minimizes risk;
Benefit from the overall strengths and strategies of other companies with more experience in certain markets, and
Build stable partnerships with companies that have competitive advantage in markets that GE wishes to enter.
These objectives will be investigated extensively in the SWOT analysis for GE, most notably because joint venture projects can be exceptionally unstable in certain markets, and the process of building stable partnerships is an art. GE has been extremely successful, for the most part, in building stable partnerships; one of the strengths of the company is that the company does not seem to enter into partnerships if they feel that their goals do not align with the goals of their potential partner. An assessment of how GE maintains these objectives and how these objectives are met by the company will be conducted throughout this discussion and analysis.
Areas of Consideration: SWOT
Strengths of Joint Ventures for GE
There is much less room for error in today’s economy. For instance, everyone thought that the banks were too big to fail; this was proven disastrously wrong during the financial meltdown. A company like GE, despite their strong position in today’s economy, cannot afford to invest the massive amount of funds necessary to support a greenfield operation or the funds necessary to restructure an existing company during the acquisition process. The case study presents China as an example of a country where joint ventures are simply easier for a variety of cultural and geopolitical reasons, and this is a perfect example of the benefits of joint ventures: there are undoubtedly economic frontiers to be explored in China, but developing greenfield ventures or doing acquisitions in China can be extremely problematic for political and fiscal reasons—the economic controls in China are still very loose. Joint ventures are excellent in places like China where a company like GE wants to break into the market but does not want to deal with the multitude of problems associated with running a business venture in a developing nation.
GE also has the reputation of being able to make and keep agreements for the long term. This means that it is a reliable partner in joint venture arrangements, and the risks that are sometimes associated with the instability of joint venture agreements are minimized because the company is clearly able to maintain agreements. Although there is no guarantee that a partnership will survive in the long term, there are ways of minimizing risks for companies that are looking for partners—choosing stable companies with a history of excellent partnership agreements and a long history of good business and financial decisions minimizes the risks associated with forming joint venture agreements.
Weaknesses of Joint Ventures for GE
However, with a company the size of GE, it is generally unlikely that the company has misunderstood or under-analyzed the situation before taking on a new business partner in a joint venture. Instead, it is more likely that the increased capacity of the partnership can be problematic for the company, and that it may take time for both companies to adjust to the new organizational structure that is required by their partnership (Büchel, 2013). There might be structural disorganization for a while as both companies settle into their new roles, and the imbalance of expertise between the companies involved in the joint venture may cause supply chain or organizational disarray during the readjustment process (Büchel, 2013).
If GE and their new joint venture partner have divergent goals for the partnership, then it is likely that the partnership will eventually dissolve, especially if one party hides the goals of the partnership from the other (Büchel, 2013). Because GE joint partnerships give the minority partner veto power when there is a strategic decision to be made, it is often GE that is left without recourse if the strategic goals of the organization are not met by the partnership—in this case, the only recourse for GE is to remove itself from the partnership, dissolving the partnership. If GE does take this course of action, then they have invested time and manpower in a project that has not come to fruition, which can undoubtedly be a costly mistake for a company to make in the current economic climate (Büchel, 2013).
For GE, a joint venture gives GE very little control over the other member in the partnership—indeed, the whole idea of a joint venture is that it is a mutual partnership. This lack of control can lead to problems if the other member of the partnership does not share GE’s vision for the future, or if the other member of the partnership decides that the movement of the companies is diverging rather than converging; because it is a partnership, it can be dissolved at any time and the work done by those involved in the partnership is usually lost and cannot be implemented by the company.
Opportunities for GE in the Current Market
GE is currently known as an excellent partner in the business world. There are a plethora of business benefits to being a good partner. A company like GE has become a large and powerful organization because they recognize that there is power in partnerships—the company by itself is very powerful, but the ability to make and maintain partnerships that are fair and equitable makes it a much more powerful company as a whole. When GE wants to enter into a new industry or a new market, whether domestic or international, they know that they can form a joint partnership and enter into these markets with ease, because they have a reputation for treating their partners equally and fairly (Nibusinessinfo.co.uk, 2015).
Threats to GE in the Current Market
There are risks associated with joint ventures, especially from other partnerships that are more stable in the market. The terms of the partnership are certainly laid out painstakingly as well, because GE is such a large and powerful company. However, this does not completely mitigate the risk that GE has missed something important about the nature of their partners’ business; perhaps GE has also misunderstood the new market that they are trying to enter into (Büchel, 2013).
The major threat to GE in the market is the overall market climate. When the economic climate is good, businesses generally want to expand and move into new niches and explore new opportunities; when the economic climate is bad, they want to conserve their resources and try to avoid taking unnecessary risks. Risk-taking during a slow economic climate can be, of course, extremely beneficial and lucrative; however, it can also be extremely risky. A general unwillingness to participate in risky partnerships and joint ventures may keep companies from tying their future to a partnership with GE. GE’s excellent history as a partner may help to alleviate many of their concerns, however; only time will tell.
Alternative Course of Action
Greenfield ventures and acquisitions have the benefit of being stable in many different senses, which is certainly beneficial to the overall success of the venture; for a greenfield venture, for instance, GE would have control of all the different aspects of the company from inception (Hennart & Reddy, 1997). This, in and of itself, would not be completely devastating to the company; however, if the trend were to continue, then GE would have to go back to investing vast amounts of capital in greenfield ventures and acquisitions, which puts them in the same position that they were in before economic crisis, but without the opportunity for partnerships in the face of an economic downturn (Nibusinessinfo.co.uk, 2015).
GE’s traditional strategy of greenfield ventures and acquisitions was not sustainable in the new market post economic-crisis, because they took too much capital that GE was not willing to invest in these ventures that were not guaranteed to succeed. Joint ventures provided GE with a solution that did not require the same massive investment of capital, but also provided GE with a number of the same benefits that came with acquisitions and greenfield ventures (Business Leadership Management, 2015).
Conclusion
While GE certainly has the ability to return to greenfield ventures and acquisitions, the market is just beginning to recover in the current economic climate. This is an excellent but risky time to begin to invest in new markets and new ideas; GE could benefit greatly from this investment, but it could also lead to economic disaster for the company. As a result, the recommendations moving forward are careful risk management policies, coupled with joint ventures in markets that look promising to the company and the company’s vision as a whole.
The recommendation going forward into the near future is for GE to continue its current strategy of mobilizing excellent joint venture projects, and to ensure that they continue to offer excellent partnership terms to potential partners. However, it should also be noted that GE should remain aware of the economic climate in the regions that they are interested in accessing, and that the economic climate should be carefully monitored so GE can mobilize any strategy necessary to re-asses and re-mold business structures in that particular region. For example, if China’s government were to stabilize further and corruption levels were to fall significantly, GE might begin acquisitions in this region rather than relying on the somewhat more unstable joint venture projects that it currently relies on in these developing economies. Of course, developing economies can be extremely hard to predict, which is why constant monitoring and assessment is necessary to determine the proper course of forward movement for a company that has massive assets like GE.
REFERENCES
Büchel, B. (2013). Managing partner relations in joint ventures. Image.
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Castells, M. (2014). The economic crisis and American society. Princeton University Press.
Hennart, J. F., & Reddy, S. (1997). The choice between mergers/acquisitions and joint ventures: The case of Japanese investors in the United States.Strategic management journal, 18(1), 1-12.
Nibusinessinfo.co.uk,. (2015). Joint venture - benefits and risks. Retrieved 26 July 2015, from https://www.nibusinessinfo.co.uk/content/joint-venture-benefits-and-risks
Obstfeld, M., & Rogoff, K. (2009). Global imbalances and the financial crisis: products of common causes.
