WHAT IS INTERNATIONAL BUSINESS? – ENTERING OVERSEAS MARKETS part 6

Continuing the article on entering international markets

B. Example of Two International Companies Joining for Business in a Third Market: Ford and
Volkswagen teamed up in 1987 to form Autolatina in an effort to sell cars in South America. Autolatina produced vehicles that were based on Ford and Volkswagen designs but marketed through each respective manufacturer’s distribution channels. The advantages of such an agreement include the increased resources and expertise gained by each participant as well as the shared risk between the companies.

The obvious drawback of this type of joint venture is that neither company may have an existing foothold in the third market. In this regard, the process may be similar to starting a business from the
ground up, which is extremely costly and time consuming. The remaining disadvantages are similar to other types of joint ventures in that both companies will lose some management control, some profits, and some intellectual property during the agreement.

C. Example of an International Company and a Government Entity: this is a lesser-used mode of joint venture. This type of agreement has been used extensively by the various states of the former Soviet Union. Tengizchevroil is a joint venture between Chevron and Kazakhstan to produce, refine, and transport oil for both domestic use and sale abroad. The oil is located in Kazakhstan and Chevron has the expertise and equipment to run the entire operation.
The advantages for Chevron include a virtually unhindered access to the market, ease of licensing and tax benefits. The advantages for Kazakhstan are just as obvious. The former Soviet republic gets expert production of its oil, newly created jobs, and profits.
The disadvantages to Chevron include the hardships in dealing with the unstable political, economical, and legal framework; the difficulty in accessing the pipeline for transport, and the extremely high and uncertain export taxes on oil leaving Kazakhstan. Chevron might also have to deal with a government that is not concerned with profit. In other words, Kazakhstan may not care about keeping production high so long as oil is being produced.

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