International Joint Venture

Summary

Basically the journal main argument on the properly designed joint venture scheme between an international sources based country and a local host country based partnering able to resolve economic incentive problem. According to Broll & Wahl (1998), the outcome of international exchange rate on the volume of international trade, international capital flow and foreign direct investment will be the problems occur in international economic incentive.

However, many business organizations still highly participate in international joint venture due to certain beneficial in risk sharing such as increasing the level of tolerable risk, reduce the level of tolerable in expected minimum return and also improving the level of foreign investment.

International joint venture define as an immediate cooperation through contract and agreement on partnership of asset, capital, technology and knowledge between two or more different company from different country with the help of one of the joint venture company is came from local host country in forming one new independent company which can either maintain the origin of business type from mother company or different type of business which deviate from mother company.

International joint venture formed in different areas for the purpose in different field such as technology, financial resource, natural resources and low cost manufacturing, each international joint venture-ship required for achieved certain mutual task.

Confuse occur between international joint venture and foreign direct invest frequently, however the risk sharing are expected in international joint venture-ship while revenue sharing and cost sharing are being promoted through foreign direct investment. Moreover, the risk occur in international joint venture-ship is acceptable than foreign direct investment due to there is no any agreement of risk sharing in the foreign direct investment practices while in international joint venture-ship, local host country simply will absorb and reduce the possible risk that might occur While the risk in exchange rate of foreign direct investment company is higher than international joint venture whereby, the share that own by a foreign direct investment company are higher but the share deviation between foreign company and local company in the international joint venture might more or less equal with each other.

The journal finally analysis that a joint venture with local partner might act as risk sharing with the impact of exchange rate volatility on the optimal international investment policy and this results enable the design of useful strategy in attracting international joint venture-ship to be economic in the transition especially in those emerging market.