Page 169 - GLOBAL STRATEGIC MARKETING

• Joint ventures may be incorporated into global strategies; as product
lives shorten, cost advantages become more pronounced, and a

larger number of companies become international competitors
(Young et al., 1989).

• A mature industry with a standardised product and located in a
developing partner country’s market may use a traditional joint
venture (McDonald and Burton, 2002). Such a venture may be used
as a substitute or alternative for export and wholly owned

subsidiaries, as partners may not compete against each other.

There are two types of joint venture: the equity joint venture and the
contractual joint venture. These are the basic joint ventures encountered

in international marketing strategy. In an equity joint venture, the
partners provide an agreed portion of the equity, which may take the form

of funds or capital equipment, premises and management know-how. A
contractual joint venture has no separate legal entity, but involves the
supply of technology, marketing and production know-how or

management skills by one partner to the other on a contractual basis
(McDonald and Burton, 2002, p. 224). The downside of joint ventures is

the lack of full control and the possibility of a lack of trust. Conflict can arise
over matters such as strategy, resource allocation, transfer pricing, and
ownership of critical assets such as technologies and brand names

(Kotabe and Helsen, 2001).

6.5.6 Acquisition (direct investment)

This is the most far-reaching mode of entry, because all the resources of
a target company are absorbed by the buying company. This feature

typically distinguishes an acquisition from a joint venture, where only part
of a company’s resources is exchanged. Acquisitions are regarded as

hierarchical governance structures, because the buying company obtains
full ownership and, consequently, full control of the target company. The
acquired company must be integrated into the buying company to increase

the likelihood that the acquisition will be successful. This process of
integration is often subject to many problems and misunderstandings,

which are usually due to differences between the partners’ corporate