Joint Venture: Assessing the Market Entry of TESCO
IV. Joint Venture: Assessing the Market Entry (2)
Going into a new market is a complicated decision which has to be given concentration and awareness. With the objective of establishing a business that would be renowned and supported by consumers, entrepreneurs are increasingly attempting to penetrate the market rapidly. There are different incentives for market entry (2002). Among the motivational factors to go into an international market is the possibility prearranged by this investment to assist a company in turning into more a competitive entity among its competitors. In the case of Tesco, it has chosen the mode of entry through joint ventures with other business entities in the target country. The following discussions will present the advantages and disadvantages of the decision made by Tesco to employ joint venture techniques in gaining entry into the Chinese market.
A. Benefits of Joint Venture
If a business entity has chosen to enter the international market, there are a lot of options that will be provided. These alternatives may possibly consist of the cost, risk and the degree of control that the business will stumble upon. (2005) In ingoing to an international business venture, it is imperative that the management of the company should be capable of choosing a marketing entry scheme so as to make the corporation be more competitive (2004). International business academics employ the term “modes of entry” to depict the diverse means and approaches usable to enter markets and carry out business in other nations. In the context of joint venture as a means of market entry, it has several advantages. One would be the sharing of knowledge with the partner company. This means that the learning curve with regards to the existing market would be shortened significantly. Moreover, the credibility of the company may also improve if a competent partner is chosen in the target country. And choosing a competent partner will also open the possibility of the partner to establish high profit margins. This means that choosing a perfect partner in a joint venture entails the possibility of erecting barriers to the competitors in the same region.
B. Drawbacks of Joint Venture
Aside from the advantages, there are also drawbacks in the use of joint venture as a mode of market entry. One would be control. Majority of the studies written about joint venture has not openly measured the context of split control joint ventures. (2004) This means that the division of labour involving the partners is not given emphasis in joint ventures. To a certain extent, control over more or less all value-creation measures is pooled between the partners. The occurrence of split in the control of the management of the joint venture is significant for the reason that joint venture partners' alternative with reference to who ought to manage which certain activities have some bearing on the manner in which value is created in the joint venture and ultimately its overall performance.
On the other hand, the difference in culture similarly poses a risk in the use of joint venture. Culture differences involving joint venture partners have frequently been deemed a key factor that might have bearing on venture failure or substandard performance. (2002) In addition to that, cross-national joint ventures have been documented to experience issues on communication, cooperation, commitment, and conflict resolution as triggered by the difference in the value and behaviour among the partners. (2002)