Controlling For Endogeneity With Instrumental Variables In Strategic Management Research

Analysis of the Joint Venture Enterprise Chosen

Describe about the Controlling For Endogeneity With Instrumental Variables In Strategic Management Research?

A Joint Venture is a business agreement where there is involvement of parties and they one for a specific related project and contribute together to form new equity and new assets. Both the parties exercises control over the enterprise and share all the expenses revenues together. It can be termed as an undertaking under rules of Company Law. A joint venture is usually done specifically for a particular time period related to a particular project. In this both the parties come along and equally invest their share in terms of money, time and efforts to build up the enterprise again.

This research is been done according to the international energy sector to develop a joint venture model and a development and assessment tool. This tool represents a proper method and approach which can provide evidences on modern business intelligence so that the potential partners of a business enterprise can assess the joint venture easily and find out the basic financial and technological capabilities of the business as a whole. There must be a balanced score card technique involved in order to check the responsible partners of the enterprise that could be made involved. This kind of models can be used by the business enterprise to expand their business potential and growth and by this way companies can mitigate or lower their risks of uncertainties and they can also become a part of the stakeholders as well.

The joint venture enterprise chosen for this research work is Eskom Enterprises. The company was developed in the year 1999 and it is a wholly owned subsidiary of Eskom. The main purpose of the enterprise was to venture into a number of foreign countries such as in South America, India, Middle East etc.

The energy sector is a global initiative that leads to industrial development which in turn leads to the generation of the economic development of a nation as a whole. We know that in Africa the national economy is not up to the mark and is relatively unprogressive in nature. Through such socio-economic development programmes the company enjoys both political and economic support to develop Africa’s energy sector. The company should also build up the ability to sustain competitive advantage and globalise itself as a powerful market along with available resources. There must be a collaboration along with other players in the market so that this kind of challenge can be overcome. Recently the company is disadvantaged with a poor track record of joint ventures, particularly those related to African market itself. The company has a portfolio of about 55 projects and it was inferred from the evidences that all of them had some sort of collaboration along with other companies as well. 26% of the projects have been accomplished, 47% are under work in progress and the remaining have failed in execution and implementation (Bascle, 2008). There must be compelling factors involved which would urge other companies to join the organization such as risk sharing, organizational learning and facilitating global expansion.

The key drivers associated with joint venture

Generate alternatives:

There are many risks involved and associated with any business enterprise therefore it is necessary to check such risks if companies can merge with a particular company or not. The investors must actively ensure all these risks associated and develop reasonable alternatives in the early planning stage to manage the production in various levels. There must be standard investment and transaction practices which could create problems related to foreign exchange, accounting and tax rules also. In the acquisition context, it would mean generation of alternative ways of paying the shareholders in terms of their own shares (Bourhis & Leduc, 2009).

The joint venture businesses are always refereed as strong competitors. Sometimes it is seen that the foreign investors lose whole of its products from the source market and sometimes they also get associated with previous joint venture companies as well. There is always a risk or uncertainty of enabling or establishing a competitor. Therefore it is necessary to evaluate all the necessary aspects in this regard and according to the above mentioned fact (Bromiley, Navarro & Sottile, 2008).

There must be a necessity of active participation in terms of operational work that is to be done. Sometimes foreign investors generally come along with a profit making motive only but they cannot align it with the strategic fit  of the company as a whole. If the companies come with a strategic motive then the partners can gain technology, knowhow and can ultimately develop new product and processes. Such motives are both collaborative as well as competitive in nature. It is also necessary to maintain the brand name and reputation of the parent company therefore it is essential to investigate all the potential records associated with the partner so that no non regulatory activity emerges (DeSarbo & Grewal, 2008).

It is very critical to analyse and conclude the joint venture’s products in its core markets. This can often lead to overlapping with each others products as well as markets and specific obligations of the parties can also compete along with each other. Therefore it is necessary to demand none competing commitments from the resource partners after the agreement is over.

This is a point where foreign investor’s products are mostly exposed to the market. Therefore it is the responsibility to avail all the contractual and practical safeguards and use them to develop products in the market. The technology being used must be segmented and distinguished so that the core competency is not exposed. The critical parts of the technology should be divided in terms of core competent parts and the necessary materials needs to be sent to the joint venture by the foreign company. It is necessary to retain the ownership and all the improvements that have been implemented. All the tracking measures must be updated and necessarily checked (‘Corporate sustainability’, 2008).

Joint Ventures are complex entities that completion of them requires rigorous commitment of management resources by the parties. The drafting and negotiation process must be done effectively in order to reach the agreement.

Benefits Associated with the Joint Venture

In order to analyse the benefits of Joint Ventures the partners must realize the critical elements that help in shaping the business strategy of the company and also identifies various interactions among each of the determinants in context of the culture of the company. The different elements are as follows:

Technology Strategy: This is related with the management and technological assets of the company and the overall integration of corporate strategic intent so that there is an ensurance of competences with industrial benchmark.

Financial Strategy: This is related  to the policies and mechanisms to ensure sustainability and profitability of the company along with financial prosperity (Fraser, 2008).

Human Capital: This is related to the people or employees of the company that a company employs and the available capacity of the company that can be linked with the human skill and knowledge of these people.

Ecno-political environment: This is presented as the political dynamics that is available within a particular region or country and this impact has a overall impact on the national economy as well (Lee, Zhao & Ma, 2010).

The Joint venture must have good partnership abilities which can be demonstrated as a value added perspective for the company. There must be a proper synergy created by all the individual contributors. It is believed that good joint venture not only lie only in the execution of the project but also in accuracy of selecting the associate partner as well. A good partnership is the one that has the ability to add value to the entire spectrum of the joint venture’s primary as well as secondary business activities. It must also aid in ling term decision making of the company along with profit making business associated with the business activities. After mapping the capabilities by a potential partner the venture development manager can gain a holistic view of the joint capabilities of the partnership firms as well and if any gaps are present those gaps can also be identified by the potential partners. All the capabilities of a business firm must be matched along with the industry standard as well.

Every company along with its resource partner has some issues related to the growth or profit making ability of the business. Both the companies had a strong focus on persuing investment opportunities in the energy sector. The joint venture will strongly focus on the private equity investment opportunities in the energy sector. The business will strongly focus on private equity investments in those companies who are engaged with oil and gas production, mining and energy services and other related operational work. There is a plan of the joint venture  to target annual investment opportunities between USD $100 million and USD $ 200 million (Shaw, 2000). The company is planning to invest as a strong entrepreneurial management teams who have a strong reliable strategy that can lead to growth and development and this will lead to creation of values based on competitive advantages and sustainable growth of the business as a whole.

The joint venture may also strengthen the strategic, operational, financial and technical capabilities of the respective organizations to invest and grow in the operating companies that are capable to achieve a grip in the mining industries as well.

There is a possible issue regarding inclusion of acquisition strategies to enhance the value of the company in the oil and gas sector and lower risk exploration strategies. In other sectors, the Joint Venture will try to impact on recent breakthroughs in the development of unconventional oil and gas resource developments to increase store and capabilities (Thompson & Martin, 2010).

Aligning the techno-financial strategies of the Partners:

It is previously mentioned that the business strategy is composed by four basic elements : technology, finance , econo political environment and human capital,. Out of the four technology and finance are of more importance that can aid in strategic decision of companies within a technology based industry such as the power sector. These determinants help in screening the aspects of the joint venture model. The human capital aspect plays a side role here as much of the task is technology oriented and is operational work that is done by machines itself.

In any joint venture there are particularly two basic qualities required: one is strategic fit and the other is the cultural fit. There is interaction required between these two qualities to show the relative importance of these two qualities in accordance to the organization (Uggla & Verick, 2008).

The strong partnership is highlighted in the extreme right quadrant of the matrix which depicts that there is a effective  strategic and cultural fit between the companies. The bottom left quadrant depicts that there is a total mismatch between both the partners and there is no point in building any relationship further with that particular company. There are many industries that progress from the top left quadrant to the top right quadrant. The bottom right quadrant on the contrast expresses conflicting strategic intents. It do not aid in any kind of competitive advantage to both the partners as a whole and as a result the company remains unaffected.

Conclusion:

Joint Ventures are generally technology based industries. They believe in acquiring effective alternatives in various other fields such as the power sector. Such industries try to out lay fixed costs so that it can acquire new capabilities. All the individual capabilities and resources are integrated so that both the companies can be benefitted by cooperative strategies along with the competitive strategies of the company that are limited only to the profitability and sustainability  of the business as a whole. There must be a mutual understanding and cooperation among the partners so that the partnerships can be mitigated with the risks involved and also includes facilitation from the national governments which are considered as the primary shareholders in the energy sector. There lies acknowledgement in success of the joint venture in accordance to the strategic and cultural issues influencing the partnership as a whole . The joint venture model also presents a systematic approach to determine the accomplishments for both the companies as a whole. There must lie a systematic approach related to the modern business intelligence and so that the related potential business venture can be assessed and developed. The model also acts as an instrument in screening all the potential partners resources based on their core capabilities of financing and technology. This model acts as a robust tool to determine economic growth and sustainable business expansion.

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